Wells Fargo On Carvana: Cash Infusion Adds Growth Optionality

With a combination of debt and equity, Wells Fargo says Carvana Co (NYSE: CVNA) has plans to inject capital of more than $500 million, which significantly improves its financial flexibility.

The Analyst

Wells Fargo’s Zachary Fadem maintained an Outperform rating on Carvana, with an unchanged price target of $85.

The Thesis

The capital raise announced by Carvana on may 22 not only adds optionality for future growth avenues, but also eases the overhang related to the company’s future financing needs, Fadem said in a note.

With the latest infusion, Carvana has enough liquidity to execute its near-term growth plans, including entering around 35 new markets and adding IRC projects in Nashville & Cleveland.

Fadem added that the funds will also allow the company to drive its IT and brand awareness initiatives and provide it enough cushion to accelerate new market penetration beyond its 2019 goal of 65 percent of the population, to broaden its logistics network and to extend its IRC presence.

Expectations are rising, comps are becoming tougher and Carvana’s shares have been volatile, but there seem to be “fewer catalysts for bears to play for given recent clarity around CVNA’s financing platform and addressing the need for capital,” Fadem wrote in a note.

Price Action

Shares of Carvana declined more than 5.8 percent to $56.60 at the time of publication on Wednesday.

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Photo courtesy of Carvana.