Carvana Co. (NYSE:CVNA), the used car reseller, could see its shares benefit from the growth of its retail gross profits per unit (GPU), Jefferies analysts believe.
Jefferies had expected weak GPU to lead to a deterioration in unit economics at the beginning of 2024.
However, Carvana has now guided first-quarter retail GPU to a fourth consecutive all-time high, driven by management’s operational adjustments over the last year.
Through implementing process standardization, logistic efficiencies and customer sourcing, the group has been able to reduce retail reconditioning and its transport costs.
These changes were further boosted by improvements in inventory turnover and increased revenues from shipping fees.
Analysts at the US bank now believe these changes will reduce downside risk and will help the company edge closer to achieving positive cash flow.
Therefore, Jefferies has upgraded Carvana from ‘underperform’ to ‘hold’ and raised its price target from US$30 to US$85.
“That said, concern about potential pressure to unit economics once growth accelerates keeps us from becoming more positive,” the US bank added.
Shares in Carvana were down 2.5% on Tuesday at US$76 but have experienced a 55% jump in the year-to-date.