Is Carvana Stock 'Grossly Undervalued'? Piper Sandler Still Sees 100% Upside After Slashing Price Target

Zinger Key Points
  • Piper Sandler analyst Alexander Potter upgraded Carvana from Neutral to Overweight and cut the price target to $73 from $98.
  • "We think many realistic scenarios suggest that CVNA is grossly undervalued," the analyst wrote in a note to clients.

Piper Sandler analysts see significant upside in Carvana Co CVNA with the stock down more than 90% from its peak. 

What Happened: Piper Sandler analyst Alexander Potter upgraded Carvana from Neutral to Overweight on Sunday.

Potter acknowledged that used vehicle prices are falling, rising rates are a risk to the stock and "bankruptcy is a real possibility," but the analyst still believes the stock has fallen way too far to ignore the longer-term opportunity.

"CVNA is now 1/10th as valuable as it was 12 months ago, and after running a detailed sensitivity analysis ... we think many realistic scenarios suggest that CVNA is grossly undervalued," the analyst wrote in a note to clients.

Using a discounted cash flow (DCF) model, Piper Sandler analysts cut their price target to $73, which still implies the stock could nearly double from current levels. The DCF model assumes that Carvana's sales volume will reach 3.3 million units in 2035, representing about 8% of the U.S. used car market. 

Moreover, Piper Sandler analysts expect positive EBITDA in 2023 and the company's cash conversion cycle to eventually return to the low/mid-30s.

Piper Sandler said it cut its price target to reflect challenging near-term conditions in the used vehicle market and a higher weighted average cost of capital, but the firm maintains that there is significant upside opportunity in the name longer term. 

See Also: Bristol-Myers Squibb To $87? Here Are 5 Other Price Target Changes For Monday

Piper Sandler told clients that Carvana's value is a function of two key inputs: market share in the used car market and profitability. 

"We have analyzed CVNA in these terms, and in our view, there's reason for optimism," Potter said. 

CVNA Price Action: Carvana has a 52-week high of $240.58 and a 52-week low of $19.45.

The stock traded above $42 on Monday before pulling back. According to Benzinga Pro, 41.78% of Carvana's float is currently sold short, which could be adding to the volatility in the name.

Carvana shares were up 11.96% at $40.99 at time of publication,

Photo: Tony Webster from flickr

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
date
ticker
name
Price Target
Upside/Downside
Recommendation
Firm
Posted In: Analyst ColorUpgradesPrice TargetAnalyst RatingsAlexander PotterPiper Sandler
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!