Carvana's Production Capacity Unlikely To Take Off Until 2021, BofA Says In Downgrade

While Carvana Co CVNA seems well-positioned to sustain strong growth in the long term, the stock has limited near-term upside due to its valuation and the company's capacity restraints, according to BofA Securities.

The Carvana Analyst: Nat Schindler downgraded Carvana from Buy to Neutral and raised the price target from $150 to $230.

The Carvana Thesis: While Carvana's second-quarter results were broadly in-line with expectations, the commentary suggested that the company exited the quarter with a 40% year-on-year run rate in total unit sales, Schindler said in the Friday downgrade note. (See his track record here.) 

Gross profit per unit came in at $2,726, which represents a 13% year-on-year decline, but beat Street estimates on the back of strength in finance and wholesale GPU, the analyst said. 

“We are encouraged by commentary suggesting record levels of consumer demand with an accelerated shift towards eCommerce.”

Yet Carvana is facing inventory constraints as COVID-19 affects its production capacity, which is unlikely to ramp up until 2021, Schindler said. 

While expressing confidence in Carvana’s long-term prospects, the analyst said  the stock already prices in a recovery in unit sales growth.

BofA raised its Carvana earnings estimate for 2020 from a loss of $3.35 per share to a loss of $2.93 per share.

CVNA Price Action: Shares of Carvana were down 11.21% at $198.39 at last check Friday. 

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