Cars.com Crushed After Q2 Earnings Miss; DA Davidson Cuts Price Target In Half

Cars.com Inc CARS shares are getting wrecked yet again one day after reporting a second-quarter earnings miss.

The Analyst

DA Davidson’s Tom White downgraded Cars.com from Buy to Neutral and lowered his price target from $28 to $13.50.

The Thesis

Cars.com's strategic review process is now terminated after the board found “no actionable bids” and the company’s second-quarter results revealed a weaker fundamental outlook for its OEM and dealer-facing businesses.

“In recent days, we’d come to terms with the possibility of a “no deal;” announcement, but we were caught by surprise by CARS’ significantly weaker financial forecast this morning,” White wrote in a note.

The analyst also said dealer additions for Cars.com’s core listings product have been soft in July and early August, meaning the third quarter could be another quarter of declining dealers.

White said the second quarter wasn’t all negative, however, with audience trends remain strong providing the company with a new angle for selling against CarGurus Inc CARG and says following early TEGNA conversions, all U.S. dealers will be serviced by Cars.com's own salesforce by the fourth quarter.

“For some, these developments suggest CARS’ underlying business is healthier than it’s been in some time; for us, the financial flow-through of recent improvements in audience, etc. has been frustratingly slow to materialize and some industry trends seem to be shifting against them,” said White.

Price Action

Cars shares traded lower by 15% Tuesday to $10.05 at time of publication. The stock fell more than 30% on Monday following the earnings release.

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