CARS - Carvana's good news isn't enough for RBC Capital Markets; stock downgraded
2023-07-20 09:50:11 ET
Carvana ( NYSE: CVNA ) slipped nearly 5% on Thursday morning as RBC Capital Markets downgraded the shares.
The used car seller reported better Q2 results and debt restructuring on top of new access to equity capital reducing liquidity risks, but that wasn't enough for the bank.
“Sticking to fundamentals, we move to Underperform,” RBC Capital Markets analysts Brad Erickson and Logan Reich wrote in a note.
“We believe LT margin improvements are now likely well/ overly-appreciated, a faster (potentially margin-stalling) return to growth is likely necessary to cover debt costs and significant dilution & expanding debt load post-restructure are likely coming.”
RBC raised estimates and its price target to $30 from $9 on better near-term performance and lower liquidity risks but the firm expects the stock and more measured fundamentals to converge over time if and when near-term volatility abates.
On Wednesday, the Tempe-based company filed to sell 35M Class A shares that could raise at least $350M in aggregate gross proceeds and reported its best quarter yet in terms of adjusted EBITDA and total gross profit per unit.
The car retailer also said it entered into a transaction support agreement with a group of noteholders representing over 90% of the aggregate principal amount outstanding of the retailer's existing senior unsecured notes. The deal will reduce cash interest expenses by $430M per year for the next two years.
Carvana ( CVNA ) is a favorite of short sellers. About 55% of shares are short-sold versus more than 12% for rival CarMax ( KMX ) and 2.5% for Cars.com ( CARS ).
Shares of CVNA are up more than 1,000% year-to-date.
More on Carvana:
- Carvana pares huge gain after filing to sell 35M shares
- Carvana skyrockets after Q2 results, striking deal to restructure debt
- Carvana reports Q2 results, expects to achieve positive Adjusted EBITDA in Q3
- Seeking Alpha’s quant ratings on CVNA
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Carvana's good news isn't enough for RBC Capital Markets; stock downgraded