S&P Global Ratings revised its outlook on Carvana Co. ( NYSE: CVNA ) to Negative From Stable in a new report issued on Wednesday.
The ratings agency expects persistent losses for CVNA after Q3 operating results came in weaker than expected and given the deteriorating macroeconomic environment.
S&P lowered its forecast on CVNA and no longer expect the auto retailer to reach breakeven EBITDA by 2024.
"Our reduced margin forecast is based on both a weaker gross profit per unit and slower reduction of SG&A costs on a per unit basis. GPU is expected to remain weak due to higher used car depreciation rates and lower returns from selling loans and other products. Carvana generates over 50% of its GPU from selling loans and other products. With rising interest rates, it is more difficult for Carvana to compete with the large banks that can keep loan rates low, which will reduce the number of loans allocated to Carvana."
The volatility of the ABS market is expected to continue over the next 18 months and add additional pressure for Carvana to sell more whole loans to Ally on less profitable terms.
In regard to the balance sheet, CVNA's liquidity is expected to erode more rapidly than expected, and the company's standing in credit and equity markets is said to have deteriorated significantly since Q2.
Earlier in the week, JPMorgan warned that Carvana stock was not for the faint of heart.
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S&P Global issues negative outlook on Carvana stock