Stifel analyst Scott Devitt downgraded Carvana (NYSE:CVNA) to Hold from Buy with a price target of $40.00 per share, down from $115.00 to reflect “deteriorating capital market conditions and worsening trends in the used vehicle industry.”
It was reported yesterday that the used car retailer plans to cut its workforce by 12% after agreeing on a deal to expand operations recently.
Ernie Garcia III, CEO of Carvana, said the move comes as the company attempts to bring staffing and expenses in line with sales.
“It has always been the right move to start building for growth well ahead of when we expect it to show up,” Garcia told employees via email. “This strategy worked for us every year until this one.”
Macroeconomic factors such as inflation, higher interest rates, and supply chain constraints have weighed on the car retail market, urging Carvana to make headcount adjustments to balance the sales volume and staffing numbers.
Sales of Carvana plunged for the first time ever in the first quarter, with the car retailer reporting a net loss of $260 million.
“We are further reducing our estimates for Carvana’s retail and wholesale vehicle sales, and our revised model suggests that the company will need to raise incremental capital relative to its existing liquidity resources before reaching breakeven,” Devitt said in a note.
Morgan Stanley analyst Adam Jonas, who also downgraded CVNA stock recently, expects more restructuring actions from the company.
“We believe CVNA is beginning a necessary phase of rebalancing their cost structure to a slower used car/macroeconomic outlook,” Jonas said in a memo to clients.
Carvana stock price is down 90% compared to an all-time high of $370.10 set in August last year.
By Senad Karaahmetovic