On paper, automotive e-commerce platform Carvana (NYSE:CVNA) seemingly offers much to celebrate as it announced an improved outlook for its third quarter. Progress in key business drivers and strong momentum early in the quarter led to a positive disclosure. However, analysts remain skeptical about the company’s path to profitability. CVNA stock fell about 4% in the early afternoon session.
According to its press release, Carvana earlier called for positive adjusted EBITDA in Q3, as well as a non-GAAP total gross profit per unit (GPU) above $5,000. However, based on early data, management felt confident enough to both specify and lift these assessments. Now, adjusted EBITDA will land above $75 million. Also, GPU will hit somewhere north of $5,500.
“In the first two quarters of 2023, Carvana posted best-ever quarterly GPU and adjusted EBITDA performances, and our continuing performance so far this quarter has led us to raise our Q3 outlook,” said Carvana Chief Financial Officer Mark Jenkins.
The CFO further added that its strong execution continues to drive lasting business improvements. These upswings include fundamental gains in retail and wholesale GPU that will undergird future results.
Unfortunately, investors didn’t find much in the news. Not only did CVNA stock fall during the midweek session, it dipped roughly 17% during the trailing five sessions.
Analysts Question the Viability of CVNA Stock
Interestingly, the consensus view among analysts for Carvana’s Q3 adjusted EBITDA was $45.7 million. Therefore, the updated guidance of over $75 million should be a hopeful sign that CVNA stock might regain its footing. Unfortunately, the company has been struggling with heavy debt loads as it faces a slowdown in the used car market.
Per Bloomberg, the latest announcement comes just three weeks after Carvana reported better-than-expected second-quarter results. In addition, it announced a debt restructuring, which lifted investors’ spirits. Despite an early morning pop higher, CVNA stock eventually printed red ink.
According to the publication’s Bloomberg Intelligence service, Carvana’s forecast upgrade might do little to swing the needle for CVNA stock:
“Carvana’s upward revision of adjusted Ebitda (a non-GAAP measure) to above $75 million for 3Q, from just positive Ebitda, does little to affirm the path toward long-term profitability. Vehicle sales collapsed to 77,000 units in 2Q from 112,000 a year earlier and, despite head-count reductions to slash costs, leave questions unanswered about the sustainability of the turnaround.”
One of the major headwinds is the aforementioned debt load. So far, Carvana failed to post positive net income for a full year due in part to the significant interest expenses related to its debt. Bloomberg notes that the recent restructuring will lower borrowings by $1.2 billion and provide the company the opportunity to delay some interest payments for the next two years.
Why It Matters
Currently, analysts peg CVNA stock as a consensus hold. This assessment breaks down as only one “buy,” 11 “holds” and five “sells.” Further, the two most recent ratings from Jefferies and Morgan Stanley are sell ratings. Overall, the experts’ average price target sits at $37.14, implying about 13% downside risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
