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Carvana Raises Q3 Profit Expectations

Analysts reaffirm the company's market rating because of the improved forecast.

August 10, 2023
Carvana Raises Q3 Profit Expectations

Carvana revised its forecast for total gross profit per unit to $5,500, an increase of $500 from before.

IMAGE: Timasu, Pixabay

2 min to read


 

Executives from the Tempe-Arizona based Carvana raised their profit outlook for the third quarter, expecting momentum from an early-year turnaround to carry through the rest of the year.

According to a statement issued on Wednesday, Carvana expects adjusted earnings before interest, taxes, depreciation and amortization to exceed $75 million in the third quarter. Earlier, the company’s adjusted EBITDA outlook was "positive" and the consensus analyst estimate was $45.7 million.

According to a Barron’s report, the revision stems from Carvana:

  • Selling more loans in the third quarter

  • Operational improvements that include lowering costs at inspection centers and in-sourcing services

  • Record profit per unit in the first and second quarters

Carvana reported “significant fundamental gains” in vehicle profitability in retail and wholesale operations in the second quarter, Barron's reported, noting that the company has revised its forecast for total gross profit per unit in the quarter to over $5,500, an increase of $500 from before.

With a better forecast, Carvana is on track to recover from pandemic-related difficulties, and investors are taking notice. After reporting positive second-quarter results and announcing debt restructuring plans, company stock shares rose by as much as 12% during premarket trading on Wednesday, the Detroit News reported. By 9 a.m. today, they had increased by 7.2% to $47.20. in New York, the news outlet noted.

But Carvana’s early pandemic peak is still out of reach, with current stock value down by over 85%, the article noted.

Carvana's net income also has not been positive all year, partly because of the high interest expenses associated with debt, reported the Detroit News. However, a restructuring agreement announced in July should lower borrowings by $1.2 billion and enable Carvana to delay some interest payments for the next two years, the paper reported.

Carvana’s positive outlook prompted Colin Sebastian of Baird to raise his target for Carvana‘s stock to $45 from $25 while maintaining a Hold equivalent rating. According to FactSet data, 15 analysts have assigned Carvana stock a similar rating.

Based on the assumption that some fundamental changes will be sustainable, Sebastian revised his full-year 2024 estimate from a $1.60 loss per share to a $1.23 loss, reported the Detroit News. In contrast, FactSet's analysts predict a loss of $2.56 per share for 2024.



 

 

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