This Stock's Price Shifts Into High Gear With Analyst Upgrades

Key Points

• Carvana analysts signal a shift in sentiment that has the stock moving higher.
• Institutional buying is a tailwind for the market and pushes it to multi-year highs.
• Short interest is still a factor and added fuel to this rally.

A single analyst's upgrade can excite a market; a trend of upgrades can lift it, which is lifting Carvana NYSE: CVNA—a trend in upgrades signaling a shift in sentiment and a sustainable rally for this stock. The upgrade trend is strong enough to put CVNA on MarketBeat’s list of Most Upgraded Stocks, which is significant because Carvana has been prominent on the list of Lowest Rated Stocks for many quarters. The takeaway is that this once stalled investment is rebounding, and the rebound is shifting into high gear. 

The latest revision comes from Needham. Senior Analyst Chris Pierce and team upgraded the stock to Buy from Hold, calling it a secular growth story with a cyclical kicker. The secular growth story involves the company’s digital-first operating model, under-utilized brick-and-mortar footprint, and an outlook for industry-leading growth. The growth will be driven by unit sales and increased market share in the retail and wholesale markets. The cyclical recovery kicker involves the analysts' sentiment. Needham views sentiment as bottoming and entering an upgrade cycle that could last several quarters. Needham’s new $160 is the new high target from analysts and may be reached soon. 

Institutional Tailwinds Lift Carvana to Two-Year High

Analysts are not the only sell-siders interested in Carvana. The institutions, the largest group of investors in the market, have bought this stock on balance for six consecutive quarters and increased their holdings to over 55%. The Q2 action is noteworthy because of numerous large position increases, including a 40% gain for T. Rowe Price, which now owns 3.7% of the shares. 

Vanguard holds about 5% of the stock in its funds and increased its holdings by 3%. The more significant activity is from the numerous smaller funds and private institutions that increased their holdings by triple digits. Those include the State Board of Administration of Florida Retirement System (+302%), Cetera Investment Advisors (+170%), and GAMMA Investing LLC (+127%). 

The reason for the bullishness is the results. The company hit the skids in 2021 but bottomed in 2022 on an expectation that an industry cycle low had been reached. This year's catalyst was the Q1 results, which affirmed the outlook and gave a little more. The FQ1 results included top and bottom line strength, a return to growth, and record net income. Revenue growth topped 17%, outpacing consensus by 1200 bps on strength in units and pricing. 

The earnings were another real shocker, reversing a loss posted in the prior year and outpacing the consensus reported by MarketBeat by nearly $1.00. However, the guidance has the market shifting into high gear. The company didn’t give specific guidance but is forecasting a sequential acceleration in the YOY growth pace and for earnings strength to continue. 

Expectations Build for Carvana: Q2 Results Will be a Catalyst

The analysts are building solid expectations for Carvana’s Q2 results but may still underestimate the recovery. The ten revisions tracked by MarketBeat are all upward, but expect only 10% revenue growth at the consensus. Further, the consensus forecasts a quarter of GAAP and adjusted losses contrary to guidance. Q2 results are due at the end of July.

Short interest is another factor aiding the rally in this stock. Although short interest is falling, it was still a high 10% in mid-June, fueling a short-covering rally. 

The technical picture for this automotive stock is robust. It is moving up off its bottom and regularly knocking out resistance levels. The latest analysts' upgrades have the market trading at a two-year high, supported by the 30-day moving average. With this trend in place, the stock will likely continue to move higher in 2024. The next target for significant resistance is near $150, which may be reached by mid-summer, assuming the Q2 results are good.