SFT - Shift Technologies downgraded at DA Davidson after CarLotz acquisition

After a noisy earnings day for Shift Technologies ( NASDAQ: SFT ) motivated DA Davidson analyst Michael Baker to downgrade the stock on Wednesday.

The online auto retailer offered a mixed earnings result on Tuesday evening wherein losses were lighter than anticipated, but units missed consensus and revenue forecasts were trimmed. Adding to the spate of news, the company also announced a CEO transition and the acquisition of Carlotz ( LOTZ ).

While Baker applauded the acquisition on the basis of its potential to shore up the balance sheet, he noted that it is also “potentially dilutive and risky.” As the used car space deteriorates and the company guides down, the integration risk only adds another potential problem. That is not to mention the CEO transition that adds another layer of complexity.

“The deal does have its merits, most important of which is the $75M in cash that Shift picks up from the combination with Carlotz ( LOTZ ),” he noted. “SFT needed to raise capital to shore up their balance sheet, and the additional $75M from this deal should give them enough liquidity to see through to their breakeven strategy.”

Yet, the deal was noted as quite expensive considering the loss-making history of CarLotz itself.

“For their $100M purchase price, SFT is buying just over $100M in EBITDA losses in 2023 according to the consensus forecast,” Baker wrote on Wednesday.

Given these factors, Baker explained that he could no longer recommend the stock as a “Buy”, downgrading to “Neutral” and reducing his price target to $1.50 from a prior $2.50.

Read more on the details of the CarLotz deal .

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