Carvana Co. (NYSE:CVNA) has been upgraded to a ‘Buy’ rating by Citi analysts who cited the online used car retailer's robust improvements in retail unit sales, gross profit per unit (GPU), and overall organizational profitability.
Analysts believe Carvana is scaling up its inventory to meet rising demand efficiently, supported by an improving supply of new vehicles that is unlocking greater demand for used cars.
The company’s focus on enhancing retail unit sales is already yielding positive results, with proprietary tracking from Citi’s Innovation Lab indicating that fourth-quarter sales could exceed consensus estimates by approximately 7%.
Sustainability in GPU improvements has also bolstered Citi's confidence. Analysts see a "GPU bridge" that demonstrates durable profitability improvements across Carvana’s operations.
“We have reviewed the recent short report on shares and post Carvana’s organizational changes that began in 2022, we believe it is better positioned across most facets of its organization,” they wrote in a note to clients.
Despite recent pressure on Carvana’s stock price, which is down 22% since its December 2016 highs, Citi sees this as a buying opportunity, particularly given the broader S&P 500's relatively modest decline of 3% over the same period.
“We would take advantage of the dislocation in shares,” they wrote.
Analysts have a price target of $277 on Carvana, which finished Tuesday’s trading session at $197.