Analysts Roll Out Bullish Coverage Of Carvana, The 'Amazon Of Used Cars'

Shares of recently-public Carvana (CVNA) are falling despite a number of Wall Street research firms initiating coverage of the stock with Buy or equivalent ratings, citing the potential for market expansion, a scalable retail model and possible gross profit increases.

BULLISH VIEWS: Baird analyst Colin Sebastian initiated coverage of Carvana this morning with an Outperform rating and a $15 price target, calling the company the "Amazon of used cars." Sebastian said he believes the company has "one of the first legitimate, scalable retail models" for used car retailing in the e-commerce market. He said annual used car volumes, as well as Carvana's streamlined shopping process, provide for a large growth opportunity and he expects Carvana to expand from 23 markets to over 50 markets by year-end 2018. BofA Merrill Lynch analyst Nat Schindler started Carvana with a Buy rating and a $25 price target, saying the company has strong growth potential and can sustain revenue growth of over 50% through the end of the decade driven by market expansion and brand awareness. Schindler also believes the e-commerce market is "ripe" for disruption and Carvana has the ability to leverage inventory and costs that will allow it to grow share. Wells Fargo Analyst David Lim voiced similar views, initiating coverage of Carvana with an Outperform rating and a $19 price target. Lim says that the growth rate of the company's new markets is strong, the company's low-cost model and pricing technology support profit expansion and there is potential for gross profit per unit to improve. In addition, Wells' survey indicated that 26% of consumers are willing to buy a used car online, and that percentage should increase, the analyst wrote. JMP Securities analyst Ronald Josey also started coverage of Carvana with a $17 price target and an Outperform rating, pointing to multiple positive catalysts, including increased penetration of its existing markets, expansion into new markets, benefits from e-commerce, and gross profit increases as its scale grows. He added that he believes there is potential for "high-margin" adjacent revenue, including financing, warranties and customization.

PRICE ACTION: Carvana fell 16c, or 1.4%, to $10.92 in morning trading. Carvana's stock opened for trading at $13.50 on April 28 after the company's IPO priced at $15 per share.