JPMorgan downgraded Carvana ( NYSE: CVNA ) to an Underweight rating from a prior stance of Neutral with shares screening as expensive in comparison to other e-commerce names.
Analyst Rajat Gupta and team believe that at current levels there is minimal margin for error on execution and still material risk to growth and particularly profitability if the macro worsens further given the degree of capacity/fixed costs. While Carvana's ( CVNA ) Q2 results are said to have tempered concerns around solvency, it has also shifted the focus toward operations, related cash burn and the track to profitable growth.
"While we believe Carvana’s business model is more scalable, with room for continued share gains in the highly fragmented used market, we believe rising rates and continued labor/capacity constraints and a recent pause in investments to manage profitability mean volume growth is likely to slow, with valuation, despite the recent de-rating, still relatively rich vs peers."
JPMorgan assigned a price target of $35 to CVNA.
Shares of CVNA fell 2.70% premarket to $45.71 vs. the 52-week trading range of $19.50 to $376.83.
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Carvana slides after JPMorgan turns bearish on volume upside, valuation