What Happened?
Shares of online used car dealer Carvana (NYSE: CVNA) jumped 7.8% in the morning session after RBC analysts Brad Erickson and Khadijah Gibson upgraded the stock's rating from Sector Perform to Outperform and raised the price target from $270 to $280. The new price target implies a potential 40% upside. The analysts think CVNA's share price decline after a recent short report, presents "a buying opportunity."
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What The Market Is Telling Us
Carvana’s shares are extremely volatile and have had 51 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was a day ago when the stock gained 5.6% on the news that the company announced new financing terms with Ally Financial. Under the agreement, Ally will purchase $4 billion in auto finance receivables over the next year. By selling the receivables to Ally, Carvana receives cash, which is more readily available to be invested back into the business. This announcement addresses concerns raised by short seller Hindenburg Research regarding the sustainability of Carvana's relationship with Ally. Overall, the update provides a more positive outlook on Carvana's liquidity and clarifies key uncertainties, which the market does not like.
Carvana is down 0.2% since the beginning of the year, and at $199.08 per share, it is trading 23.7% below its 52-week high of $260.80 from November 2024. Investors who bought $1,000 worth of Carvana’s shares 5 years ago would now be looking at an investment worth $2,191.
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