On Tuesday, RBC Capital Markets upgraded Carvana stock from Sector Perform to Outperform, increasing the price target to $280 from $270. The decision follows Carvana's remarkable recovery, with InvestingPro data showing a stunning 303% return over the past year.
The company has achieved a perfect Piotroski Score of 9, indicating exceptional financial strength. RBC Capital analysts now see the recent pullback in Carvana's stock as a buying opportunity.
The upgrade comes with a positive outlook on Carvana's business trajectory. Analysts at RBC Capital believe that Carvana's retail unit sales have the potential to exceed expectations, especially as vehicle supply conditions improve.
Supporting this optimism, InvestingPro data reveals revenue growth of 12.21% in the last twelve months, with a healthy current ratio of 3.25 indicating strong operational liquidity. They also consider the company's Gross Profit per Unit (GPU) to be largely sustainable, countering recent concerns in the market.
Furthermore, RBC Capital's analysts are optimistic about Carvana's prospects in the online car marketplace. They anticipate that the company will continue to show improvements in both margin and balance sheet strength. The analysts expect these factors to contribute to a clearer pathway toward generating real free cash flow (FCF) for Carvana.
The updated price target is based on a 28 times multiple of the firm's projected enterprise value to 2026 EBITDA, and RBC Capital has also increased their estimates for Carvana's 2025 financials. They suggest that Carvana's constrained supply business model, combined with a large and still underpenetrated total addressable market (TAM), could potentially make it an unexpected compounder over time.
RBC Capital also notes risks to their outlook, including the sustainability of GPU levels and the ability to maintain retail volume momentum. While the company trades at elevated multiples with an EV/EBITDA of 28.59, InvestingPro analysis suggests the stock is slightly undervalued at current levels.
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In other recent news, Carvana Co (NYSE:CVNA). has secured a notable agreement with Ally Bank and Ally Financial (NYSE:ALLY) Inc., collectively known as the "Ally Parties," to sell up to $4 billion in automotive finance receivables. This arrangement follows an amendment to their existing Master Purchase and Sale Agreement and is expected to provide Carvana with a significant influx of capital.
The online auto retailer also reported record-breaking Q3 earnings, with a 34% year-over-year increase in retail units sold, leading to a 32% revenue surge. Carvana's net income reached $148 million, with an operating income of $337 million and an adjusted EBITDA of $429 million.
RBC Capital Markets reiterated Carvana at Sector Perform, JPMorgan (NYSE:JPM) reaffirmed an Overweight rating, and Needham increased its stock price target for Carvana to $330, maintaining a Buy rating on the stock.
In a significant shift, Morgan Stanley (NYSE:MS) moved from an Underweight to an Equal-weight rating for Carvana. These recent developments reflect a strong financial performance and market position for Carvana, despite some concerns raised by analysts.
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