Carvana (CVNA) Delivers First Quarterly Profit to Smash Estimates, Shares Surge as Firms Hike PTs Following a 'Milestone Quarter'
Shares of Carvana (NYSE: CVNA) are trading 9% higher in pre-open Friday after the car company reported its first quarterly profit to surprise Wall Street analysts.
Carvana said it earned $0.26 per share, significantly better than a loss of $0.62 per share reported a year ago. Sales soared almost 200% to $3.3 billion. Analysts surveyed by FactSet were expecting a loss of $0.39 per share on sales of $2.46 billion.
This quarter marks the first time the company delivered a profit. Furthermore, it marks the first quarter with over 100,000 delivered cars.
“This was a landmark quarter for Carvana. We delivered over 100,000 cars in the quarter growing 96% vs. a year ago and reported our first positive net income quarter. This quarter we were also named to the Fortune 500 list, becoming one of the four fastest companies to ever make the list with organic growth. We are extremely proud of this milestone and even prouder of the team that has made all of this possible,” said Ernie Garcia, founder and CEO of Carvana.
BofA analyst Nat Schindler raised the price target to $420.00 per share from $375.00 following a “milestone quarter.”
“We think there is upside ahead as CVNA builds out more reconditioning centers to meet strong demand. We are more constructive on the story as we see indications that 2021 unit growth can accelerate substantially and profitability could improve ahead of expectations. We raise our PO to $420 from $375 based on 5x (unchanged) higher 2022E revenue and earlier than projected profitability,” Schindler wrote in a client note.
“We see car retail unit growth of 96% Y/Y as evidence against concerns that Carvana’s growth is solely dependent on short-term industry-wide high demand and supports our view that Carvana is driven by growing industry penetration as vehicle purchases continue to migrate online,” he added.
KeyBanc analyst Edward Yruma also hiked the price objective to $410.00 per share from $360.00 to reflect higher estimates.
“CVNA has some of the strongest LT growth prospects in our coverage, and we believe that its superior consumer model will drive ongoing share gains. CVNA was able to increase average quarterly vehicles for sale 38% q/q. Some of the near-term GPU gains are market driven, but we think that continued operational discipline and strongest inventory levels will help drive continued profitability,” the analyst wrote in a memo.
The analyst also believes that a high valuation is justified given the company’s long-term growth prospects.
“2Q demonstrated CVNA’s first quarter of net income profitability, and while there were tailwinds driven by favorable pricing dynamics, this gives us increased confidence on >10% EBITDA margins long term. CVNA has successfully leveraged gross margin through increased customer sourcing, and we believe there will be additional long-term tailwinds from other items such as ancillary services, operational efficiencies in IRCs, and further financing penetration. Additionally, we anticipate significant advertising and SG&A leverage as the business continues to scale,” Yruma further stressed.