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Carvana Co. shares were set to fall again Friday, after a Thursday rally that followed Wednesday’s record declines, as analysts highlighted the challenging path ahead for the used-car retailer.
Needham’s Chief Pierce downgraded Carvana’s stock
CVNA,
to hold from buy in a Friday note to clients titled: “Confidence is Low on the Path Forward.” In doing so, he removed his prior $20 price target on the stock, which closed Thursday just shy of $5.
Shares of Carvana were off more than 5% in premarket trading Friday.
“Given Bloomberg reporting that CVNA creditors are mobilizing and unifying ahead of a potential bankruptcy filing we struggle to see a near term path forward that would get investors excited to own the stock until they see improved execution,” Pierce wrote in a note to clients.
See also: Carvana stock tumbles 43%, books worst day on record as bankruptcy fears rev up
He said that the market may be “implying a near-term bankruptcy filing” even though Carvana has “potential sources of cash” in its vehicle inventories and unpledged real estate.
Whether execution matters very much these days seems to be a topic of debate. Jefferies analyst John Colantuoni, who halved his price target to $5 in a Thursday afternoon note to clients, wrote that he thought “the restructuring process will be the primary determinant of the stock price, with fundamentals as a distant secondary factor.”
The broader industry backdrop is not treating Carvana too kindly either. “November auto data underscored continued weakness in used car demand, signs of stabilization in wholesale prices / conversion, and continued improvements in new car inventory,” Colantuoni offered.
He cut his price target on shares of Vroom Inc.
VRM,
to $1.10 from $1.30, noting that a restructuring for Carvana “could signal a further deterioration in the operating environment for used auto e-commerce.”
It’s been a tough year for pandemic-winner stocks. Shares of Shopify Inc.
SHOP,
and Teladoc Health Inc.
TDOC,
are among those on pace to shed more than 70% of their value in 2022. But Carvana’s declines are in a different realm, as the stock has seen nearly 98% of its value evaporate so far this year.
Carvana was worth as much as $64.36 billion on Aug. 10, 2021, according to Dow Jones Market Data, but its market value has come crashing down south of $1 billion.
Among other controversies for the stock has been Carvana’s purchase of Adesa’s U.S. physical auction business earlier this year, which a Wedbush analyst said in a Wednesday downgrade was “an albatross around its neck, not only adding $336m of incremental annual interest expense due but also saddling the company with additional reconditioning capacity that it does not need.”
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