Evercore ISI initiated a "positive tactical trade" on Carvana (CVNA), believing the company is well-positioned for a strong third-quarter performance and subsequent positive catalysts.
Following a visit to Carvana's headquarters, where Evercore analysts met with CEO Ernie Garcia III and CFO Mark Jenkins, the firm said it was confident in Carvana's strategy, highlighting its ability to balance industry-leading EBITDA margins with its goal of significant growth.
Evercore ISI anticipates Carvana will outperform expectations for the third and fourth quarters, with the company benefiting from stronger market share gains and a resilient consumer environment.
"We are modeling modest upside to the Street for 3Q/4Q EBITDA on stronger share gain and resilient consumer backdrop," said Evercore.
The firm's base case target has increased to $157 (up from $142), applying a premium 2.5x EV/S multiple on projected 2025 revenue.
One key factor behind this optimism is Carvana's cost-control measures. Evercore ISI notes that the company has significant opportunities for margin improvements, including 300 basis points of potential gains from more efficiently utilizing its existing reconditioning and distribution infrastructure.
Furthermore, Carvana is expected to enhance its advertising efficiency by over 50 basis points as it scales its business.
In the longer term, Carvana's third-party platform capabilities, including its partnership with Hertz, offer "intriguing potential," according to Evercore.
Hertz has reportedly seen a 5% higher profit rate through Carvana's distribution channels, and other companies may seek to tap into those benefits.
Additionally, Evercore ISI sees Carvana as well-positioned to handle the rise of electric vehicles in the used market, with potential advantages in acquiring these vehicles over time.
Overall, despite its In Line rating on the stock, Evercore ISI remains constructive on Carvana, forecasting strong performance driven by share gains, cost efficiencies, and future growth opportunities in third-party platforms and the electric vehicle market.