JMP Securities Upgrades TrueCar, Says Risk-Reward 'Extremely Favorable'

TrueCar Inc TRUE recent performance was impacted by the termination of its 13-year partnership with the USAA, which services U.S. military members and veterans. 

The company’s third-quarter results likely reflect the worst of the impact of the USAA loss, according to JMP Securities.

The TrueCar Analyst: Andrew Boone upgraded TrueCar from Market Perform to Market Outperform and established a $6 price target. 

The TrueCar Thesis: The stock lost 26% Friday after the company reported third-quarter earnings and now seems undervalued, with “multiple positive trends which can continue into 2021,” Boone said in a Monday upgrade note.

The stock's risk-reward is “extremely favorable” given that TrueCar has around $290 million in cash versus its market capitalization of $408 million, the analyst said.

Strong traffic growth should continue for TrueCar, and it is “a leading indicator of dealer adds, and ultimately, revenue,” he said.

“TrueCar’s user experience has improved significantly over the last year,” Boone said, adding that macro trends could be “more favorable in 2021 as tight new vehicle inventory dissipates.” 

TrueCar's operational metrics fell in the third-quarter; the company's cars sold missed JMP's projection; dealer losses accelerated quarter-over-quarter; and traffic slowed in October, the analyst said. 

"Many of these issues are likely temporary as we believe tight new car inventory led some dealers to pause their marketing budgets, while political advertising crowded out efficient marketing spend and diverted consumer attention and we expect TrueCar's operating metrics to improve from here.”

TRUE Price Action: Shares of TrueCar were up 7.95% at $4 at last check Monday.