Carvana shares fall on downgrade, giant cut to price target

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A Carvana car vending machine in Huntington Beach, California.

Mark Ralson/AFP via Getty Images

After three years of recommendation


carvana

and other online used-car dealers, Wells Fargo analyst Zachary Fadem downgraded the shares to Hold’s equivalent on Tuesday. He raised his price target on Carvana shares from $150 to $65.

“[M]acro headwinds are building, access to capital is shrinking and the appetite for strong growth, [free cash flow] negative companies are becoming increasingly rare,” Fadem wrote in his downgrade note. In addition to moving Carvana (ticker: CVNA) from Overweight to Equal Weight, the Wells analyst also downgraded


vroom

(VRM) and


Technologies of change

(SFT).

One of the catalysts for Fadem’s downgrade of Carvana was what he said were unfavorable terms on the junk bonds the company recently sold to finance its acquisition of car auctioneer Adesa.

As scarce used car stocks began to dampen Carvana’s growth and investors grew tired of waiting for profits, the stock fell from an August 2021 high above $376 to a close Monday from $60.47. The stock fell another 4.2% to $57.94 on Tuesday afternoon.

Fadem wrote that he remains optimistic about Carvana’s long-term opportunity and believes it can become the largest and most profitable used car retailer in the country. But he thinks investors won’t be supportive of the stock until the company produces cash flow. Meanwhile, the analyst said, Carvana is making narrower gross profits on the cars it sells as it struggles with high car acquisition prices, rising rates and falling interest rates. consumer demand. The same factors will weigh against Shift and Vroom, he said.

Email Bill Alpert at [email protected]

Eleanor C. William