By Michael Elkins
Piper Sandler downgraded CarGurus (NASDAQ:CARG) to Underweight (from Neutral) with a price target of $12.00. Piper cut estimates to reflect fewer units sold through the "Instant Max Cash Offer," as well as lower industry-wide used car sales. Analysts wrote in a note that they also think there is execution risk as CARG works to address CarOffer's recent operational hiccups.
When they acquired CarOffer, CarGurus sparked a major organizational change within the company. So far, the results have been mixed.
The analysts wrote “While the wholesale business adds a growth lever, the company has struggled to convert the incremental revenue into EBITDA. Management could certainly address operational problems related to vehicle arbitration – and a recently-announced buyback should boost investor confidence in times of macro uncertainty – but at this point, boosting our estimates would require a “leap of faith”. Rather than increasing our estimates, we’re cutting our estimates for wholesale transactions – due to lower market-wide used vehicle sales. We’re also reducing our margin expectations for CarOffer more broadly.”
Upside risks for the stock include the success of auto dealerships, faltering competition, a better-than-expected macroeconomic backdrop, and higher margins at CarOffer.
Shares of CARG are down 1.79% in afternoon trading on Thursday.