Online used car company Carvana Co (NYSE:CVNA) has had a rough year in 2022 with shares down 97%. One analyst was throwing in the towel and thought shares could actually fall further.
The Carvana Analyst: Morgan Stanley analyst Adam Jonas removed his rating and price target for Carvana. The analyst previously had an Equal Weight rating and a price target of $68.
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The Analyst Takeaways: Jonas said Carvana faced a significant risk of dilution and had a wide range of outcomes as the company struggled with declining sales and rising costs.
“While the company is continuing to pursue cost-cutting actions, we believe a deterioration in the used car market combined with a volatile interest rate/funding environment add material risk to the outlook,” Jonas said.
The analyst said management conceded there will be a lot of headwinds for the company. This included consumer sentiment declining and used car affordability coming into question. Jonas said Carvana’s CEO Ernie Garcia III acknowledged the next six to 12 months for the company were very uncertain.
“In general, the next few months will add more visibility to the items above, which will help us make a more informed decision in the direction of the stock," Jonas noted.
Jonas said with additional capital, Carvana could consider leveraging its technological edge over the competition and continue to scale.
Jonas listed a base case price range for Carvana of $1 to $40.
“We remain believers in the potential for CVNA to revolutionize the dealer business model and believe it has the best digitally enabled proverbial ‘mouse trap’ in the business.”
Jonas sees growth taking a back seat to liquidity concerns and costs. The base case range is wide given the different outcomes that could happen for the company.
The analyst has a bull case of $70 on Carvana with the company becoming the Amazon of automotive retail sales.
“Our $70 bull case assumes a 21% CAGR and a 6.4% exit EBITDA margin.”
Jonas lists a bear case of Carvana at 10 cents per share.
“Our bear case of $0.10 encompasses the possibility that the company cannot fund as a going concern resulting in minimal residual asset value in excess of liabilities.”
CVNA Price Action: Carvana shares were down 15.83% to $7.39 Monday at market close; earlier in the day it made a new 52-week low at $6.68. Shares are down 97% year-to-date in 2022.
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