Now is not the time to buy shares of Carvana as the used-car retailer faces a murky growth outlook ahead, JPMorgan says. Analyst Rajat Gupta downgraded shares of the online used-car stock to underweight from neutral, saying in a note to clients that shares are trading at expensive levels, especially in comparison to peers. “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 and a captive finco,” Gupta said. While the bank sees value in Carvana’s business model in the long run and believes the company can gain market share in the used car market, a rising rate environment poses problems for the company in the near future, Gupta wrote. “While 2Q22 results tempered concerns around solvency, it rightfully shifts focus to operations, related cash burn and profitable growth,” Gupta said. “On this front, visibility on industry volume recovery, used pricing trajectory and interest spreads remains low with 2023 GPU/EBITDA targets anything but certain at this stage.” Despite the downgrade, JPMorgan raised its price target on Carvana to $35 from $25 a share, citing a recent re-rating of the company’s e-commerce competitors. Shares of the used car stock have plummeted roughly 80% this year and the bank’s new target implies that the stock could potentially fall another 26% from Friday’s close price. Carvana’s stock soared more than 40% on Friday after the company said it was working to aggressively would aggressively cut costs as it situates itself for an economic slowdown. — CNBC’s Michael Bloom contributed reporting
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