RBC Capital Markets upgraded Carvana (NYSE:CVNA) from Underperform to Sector Perform, citing an improved risk-reward outlook. Shares gained more than 7% on Friday. The bank expressed optimism that the stock could rise further before valuation concerns resurface, making a bearish stance challenging to justify for now.
The analysts highlighted the potential for Carvana’s return to significant unit growth to positively impact its stock price, especially considering the high short interest in the company. They also suggested that Carvana’s cash generation per vehicle might be stronger than widely assumed.
With an estimated $7.4 billion in obligations over the next seven years, recent boosts in profitability per car could help Carvana manage its debt payments. Additionally, the analysts pointed out that an increasing stock price could enhance Carvana’s liquidity situation, potentially easing its access to capital markets.