CarGurus Scores Bullish Ratings On Positive Earnings

Online auto marketplace CarGurus Inc CARG recorded top- and bottom-line beats in its Tuesday earnings report. That, combined with confident annual guidance, inspired a pair of upgrades.

RBC Capital Markets analysts Mark Mahaney and Shweta Khajuria upgraded CarGurus to Outperform and raised their target from $37 to $55.

JMP Securities analyst Ronald Josey upgraded to Market Outperform and established a $55 price target.

The RBC Thesis

RBC attributed the revenue beat to U.S. marketplace subscription revenue, which was driven by outperformance in average annual revenue per subscribing dealer (AARSD). In combination with adjusted earnings before interest and taxes, the metric demonstrated strength if not acceleration in fundamental trends.

“Fundamentals reached positive inflection points for AARSD and Monthly Unique User growth, suggesting more sustainable revenue growth than we initially thought,” Mahaney and Shweta wrote in a note.

Upon reevaluation, they expect CarGurus’ direct addressable market to pave “ample runway” in the near-term.

The JMP Thesis

JMP adjusted its rating on accelerating traffic growth and resulting pricing consistency and AARSD growth.

“We believe these trends can continue as CarGurus works with its dealer partners to drive higher connections and ROI as new products such as SEM Plus, Display, and Nationwide Shipping, among others, gain greater traction and pricing power,” Josey wrote in a note.

The new product cycle, coupled with opportunity from international expansion and profitable operations, further bolstered JMP’s bullishness. The analyst increased 2019 and 2020 revenue estimates 15 percent and 22 percent, respectively.

“Should traffic growth continue to accelerate, dealer production adoption ramp, and international expansion gain scale, we could see further upside to our projections,” he wrote.

Price Action

At time of publication, shares were trading up 19 percent at a rate of $54.50.

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