Carvana’s Turnaround Tale: A Glimpse of Recovery Amidst Past Struggles

Article written by Marathon Money Plus

Carvana Co (NYSE:CVNA) has recently given its investors a glimmer of hope with a notable performance in its latest quarterly report, surpassing Wall Street’s forecasts and marking a significant rebound. The stock’s surge by nearly 30% early in the trading day signals a potential turnaround for the online used car retailer, which has faced its share of turbulence.

In the fiscal fourth quarter of 2023, Carvana reported a substantially reduced loss of $144 million, or $1 per share, a stark improvement from the $806 million, or $7.61 per share, loss recorded in the same quarter the previous year. This beat the analyst consensus, which had anticipated a loss of 89 cents per share. However, revenue dipped to $2.4 billion, a 15% decrease from the previous year and fell short of the expected $2.53 billion. Notably, retail gross profit per unit soared to $2,812, an almost sevenfold increase from the fourth quarter of 2022, showcasing a remarkable leap in profitability per unit sold.

2023 marked a historic year for Carvana, achieving its first-ever profit with net income reaching $450 million, a dramatic turnaround from a loss of $1.59 billion in 2022. The company’s stock responded positively, soaring over 30% in premarket trading following the announcement.

Looking ahead, Carvana has set an optimistic forecast for its core profit in the current quarter, aiming for a figure “significantly above” $100 million, well ahead of the FactSet consensus of $70.5 million. This ambition is supported by ongoing cost-cutting initiatives, with the company targeting further reductions in expenses per retail unit sold from the $5,769 reported in the final quarter of 2023.

CEO Ernie Garcia expressed confidence in Carvana’s strategic direction, emphasizing the company’s goal to emerge as “the largest and most profitable automotive retailer.” The anticipated slight increase in retail units sold in FQ1 2024 further underscores the company’s positive trajectory.

Amid this backdrop of cautious optimism, analysts’ perspectives on Carvana’s stock remain mixed. Raymond James analyst Mitch Ingles has revised his rating from Underperform to Market Perform, acknowledging the company’s favorable quarterly performance and improved adjusted EBITDA forecast for 2024. However, Jefferies analysts, led by John Colantuoni, maintain a more reserved stance, holding onto an Underperform rating due to uncertainties surrounding Carvana’s long-term profitability. Colantuoni’s price target of $30 per share suggests a potential downside of over 40%, highlighting the divergent views on Carvana’s valuation and future prospects.

Carvana’s recent financial performance paints a picture of a company on the brink of a comeback, addressing past challenges with a clear focus on profitability and operational efficiency. Yet, the road ahead remains fraught with uncertainty, as investor sentiment and market dynamics continue to shape the narrative around Carvana’s recovery and growth potential.

For more insights into Carvana’s evolving story and other market trends, subscribe to Marathon Money Plus and tune into our podcast for in-depth analysis and strategic perspectives on navigating the investment landscape.