Zacks Equity Research has offered an Outperform rating for Carvana (CVNA) with a price target of $293, reflecting potential growth in the next 6–12 months. The e-commerce platform, renowned for its innovative approach to selling used cars, is undergoing a transformative phase, with operational efficiency and strategic acquisitions driving its performance. With a current price of $260.13 as of December 4, 2024, Carvana is poised for significant upside, supported by its robust turnaround strategy.

Operational Highlights

Expansion through ADESA Acquisition
The acquisition of ADESA's U.S. operations has enhanced Carvana's logistics and reconditioning capabilities. This move is projected to unlock up to 3 million units of reconditioning capacity annually, a significant leap from its current 1.3 million.

Focus on Efficiency
Carvana's three-step strategy—achieving positive adjusted EBITDA, boosting EBITDA per unit, and resuming growth sustainably—has begun yielding results. The company reported a record EBITDA margin of 11.7% in Q3 2024, marking a significant improvement from 2023.

Sales and Revenue Growth
Retail unit sales grew 34% year-over-year in Q3 2024. This momentum is expected to continue into Q4, reflecting a positive outlook for the company's core operations.

Financial Metrics and Valuation

Carvana's financial performance has shown remarkable growth, with a year-to-date price increase of 383.1%. Its current valuation metrics include:

Market Cap: $53.1 billion
Beta: 3.32, indicating high volatility
Debt: $5.43 billion, a key concern given its significant leverage
Despite its stretched balance sheet, Carvana's focus on operational efficiency and strategic cost reductions provides a pathway to sustainable growth.

Quarterly Highlights

Q3 2024 Earnings Beat Expectations

EPS: $0.64, surpassing the consensus estimate of $0.23
Revenue: $3.66 billion, a 32% year-over-year increase
Gross Profit Per Unit (GPU): $7,427, a 24.8% improvement from Q3 2023
Segmental Performance

Retail vehicle sales increased by 30.5%, generating $2.54 billion in revenue.
Wholesale sales surged 28.9% to $786 million, driven by a 38.2% rise in units sold.
Other sales and revenues climbed 52.3% year-over-year to $326 million.

Key Risks

Leverage and Debt Concerns
Carvana's debt-to-capital ratio stands at 0.98, significantly higher than the auto sector average of 0.52. While debt restructuring in 2023 provided some relief, the company's high leverage remains a challenge.

Inventory Constraints
Low inventory levels could limit Carvana's ability to meet rising consumer demand, potentially impacting future growth.

Credit Risk
Reliance on finance receivable sales to Ally Financial exposes Carvana to credit challenges, particularly as delinquencies in auto loans rise.

Technical Analysis

Candlestick Patterns
Daily candlestick charts reveal a bullish engulfing pattern, signaling potential upward momentum. Investors should watch for confirmation of this trend in the coming sessions.

Fibonacci Levels
Key Fibonacci retracement levels for CVNA are:

38.2%: $245
50%: $252
61.8%: $259
These levels indicate potential support and resistance zones, with $293 acting as a crucial target.

Support and Resistance

Support: $248
Resistance: $268
The stock's breakout above $268 could confirm its upward trajectory toward the $293 target.

Investment Insights

Growth Potential
With a fragmented U.S. auto retail market and only a 1% market share, Carvana has ample room for expansion. The integration of ADESA's operations is expected to enhance its competitive edge.

Strategic Outlook
Carvana's pivot from rapid growth to unit economics and operational efficiency positions it as a long-term player in the e-commerce auto sector.

Actionable Strategy
Investors with a medium- to long-term horizon can consider accumulating CVNA at current levels, targeting $293 in the next 6–12 months.