By Sam Boughedda
JPMorgan analyst Rajat Gupta downgraded Carvana Co. (NYSE:CVNA) shares to Underweight from Neutral, raising the firm's price target on the stock to $35 per share from $25.
The analyst said, following the company's earnings release and subsequent share price rally, that Carvana's risk-reward is unattractive as shares screen expensive compared to e-commerce peers and relative to JPMorgan's broader coverage universe on near- to medium-term profit estimates.
"At current levels, there is minimal margin for error on execution and still material risk to growth, and particularly profitability if the macro worsens further given the degree of capacity/fixed costs and a captive finco," said Gupta. "While 2Q22 results tempered concerns around solvency, it rightfully shifts focus to operations, related cash burn and profitable growth. On this front, visibility on industry volume recovery, used pricing trajectory and interest spreads remains low with 2023 GPU/EBITDA targets anything but certain at this stage."
The analyst concluded that while they believe Carvana's business model is "more scalable, with room for continued share gains in the highly fragmented used market," the rising rates and continued labor/capacity constraints and a recent pause in investments to manage profitability mean volume growth is likely to slow.
Carvana shares are trading 4.8% higher Monday.