Carvana stock has experienced a remarkable surge from around $4 to $40 this year, and it continues to climb, with an 11% increase on Monday, thanks to an upgrade.
A team of J.P. Morgan analysts, led by Rajat Gupta, has raised their rating on Carvana shares from Underweight to Neutral, along with raising their price target to $40 from $25. This decision comes after a facility tour and meetings with executives. In their report on Monday, the team mentioned that Carvana is making progress in terms of productivity, costs, and culture.
Currently, Carvana shares are trading at around $39 in late-morning trading.
The analysts highlighted the importance of vehicle reconditioning and logistics in Carvana’s business model. They praised the company for right-sizing and optimizing operations over the past 18 months. This involved a shift toward proprietary tools and technology, as well as centralizing logistics functions.
Although J.P. Morgan believes the used-car market will have a slow recovery due to affordability and supply challenges, they expressed optimism about Carvana’s potential. However, they noted that until Carvana demonstrates consistent improvement in earnings per unit, most investors are expected to remain cautious. According to FactSet, 77% of analysts who cover the stock currently rate it as Neutral, reflecting a similar sentiment on Wall Street.
J.P. Morgan concluded their report by stating that Carvana has the possibility to navigate through the uncertainties of the macroeconomic and used car industry phases. They believe the company can limit potential downside risks in the near- and medium-term.