Carvana Sees 45% Upside as Morgan Stanley Keeps $450 Target
Carvana delivered Q4 revenue of $5.6B versus $5.26B forecasts but posted underwhelming earnings and a $220 per-unit reconditioning cost headwind that drove shares down about 17% in premarket trading. Morgan Stanley retained its $450 price target, highlighting 9.2% gain-on-sale spread, a $12B loan-purchase agreement and net debt/adjusted EBITDA of 1.2x as support for a 45% potential upside.
1. Fourth-Quarter Financial Results
Carvana reported Q4 revenue of $5.6B, topping the $5.26B consensus, and posted earnings of $4.22 per share which disappointed investors, causing shares to fall over 16% in premarket trading.
2. Cost Pressures and Operational Challenges
The company faced a $220 per-unit headwind due to higher reconditioning costs at less-productive production sites, with management forecasting a three- to six-month timeline to resolve these growing pains and expecting sequential GPU improvement in Q1.
3. Positive Outlook from Morgan Stanley
Morgan Stanley reiterated a Buy rating and a $450 price target, citing a stable 9.2% gain-on-sale spread, a $12B loan-purchase agreement insulating against ABS-market volatility, and an improved net debt/adjusted EBITDA ratio of approximately 1.2x as drivers for 45% upside.