Carvana upped to Sector Perform at RBC as bear case becomes 'infeasible'

investing.com:

RBC Capital Markets upped their rating on Carvana (CVNA) from Underperform to Sector Perform, with its analysts seeing the potential for the stock to climb higher before valuations become a significant concern again.

This makes the risk-reward profile on Underperform rating “infeasible for the foreseeable future,” said analysts.

“We believe any return to more meaningful unit growth will likely get fully if not overly extrapolated in the stock with additional amplification possible from the heavy short interest,” analysts wrote.

Moreover, the retailer’s per-car cash generation may be stronger than perceived by many.

“While we estimate CVNA owes roughly $7.4B over the next 7 years, we lay out recent improvements in per car profitability suggesting at least some unit growth likely gets them decent clearance to cover future debt costs,” analysts said.

Finally, the firm's liquidity position is also likely to improve with an appreciating stock price, facilitating better access to capital markets.

RBC raised the target price on CVNA from $45 to $90.