Carvana stock surges on first annual profit, pair of analyst upgrades

Carvana shares surged 30% Friday morning after posting its first-ever annual profit and receiving a pair of upgrades by Wall Street analysts.

The used-car retailer has been trimming inventory and expenses as it rebounds from the fall-off from a pandemic peak. After Covid drove increased demand for online car sales, the company’s stock soared. But after that demand wore off, Carvana was forced to begin aggressive restructuring and cost-cutting.

In its after-hours earnings report Thursday, the company posted its first annual profit with a net income of $450 million for 2023 compared with a loss of $1.59 billion in 2022.

CEO Ernie Garcia told CNBC’s Money Movers Friday morning that the company is in an “incredible competitive position.”

The company is currently in step two of a three-step restructuring plan, which includes breaking even on an adjusted EBITDA basis, driving the business to significant positive unit economics and returning to growth.

Its total gross profit per unit more than doubled to $5,283, up from $2,219 in the year-ago period, according to the quarterly report.

The company noted in its earnings report that the macroeconomic car selling environment remains uncertain, though it expects to grow retail units sold during the first quarter and for 2024.

Analysts at Raymond James upgraded their rating on the stock to “market perform” on Friday, highlighting the encouraging GPU trends. The analysts wrote that investor sentiment is “aligning more closely with the narrative of Carvana’s long-term market potential.”

The company’s stock surged last year and now trades for about $70 per share, still well off its pandemic high of $370 per share, notched in 2021. The stock lost nearly all of its value in 2022, prompting bankruptcy concerns that have since been abated by signs of recovery.

William Blair analysts also upgraded Carvana’s rating, to “outperform,” because of the profit increases and unit growth, noting that they believe the company is “now poised for a further breakout” with the encouraging 2024 forecast.

Garcia said on CNBC that Carvana, with its 1% market share, is still focused on its current inventory despite the last year’s growth and profit.

“I think we’ve got to see through what we’re currently working on,” Garcia said. “There’s no question that in the medium run, growing our inventory to give our customers even more selection is going to be a big part of our strategy. I think our goal is to be in a place where customers come to get the simplest experience, to get the best price and the best selection.”