Barclays believes that Carvana has significant opportunity to improve its market share in the used car space. The bank initiated coverage of the online car seller with an overweight rating. Analyst John Babcock’s $390 price target implies that shares of Carvana could rise 19% from Tuesday’s close. Babcock believes that Carvana could specifically benefit as affordability challenges push more consumers to buy used vehicles instead of new ones. He applauded the company’s national vehicle acquisition strategy, which gives it a large and diverse selection of vehicles for consumers to choose from. CVNA YTD mountain CVNA YTD chart Meanwhile, the company’s focus on delivering a superior customer experience through same-day delivery will also help with its brand recognition. Babcock also highlight Carvana’s simplified platform with increased price transparency for customers. “The company is well-positioned to gain share in the highly fragmented used vehicle market with a best-in-class e-commerce platform further supported by CVNA’s customer-centric focus and competitive pricing,” he wrote. “Consumers are also increasingly buying vehicles online, suggesting significant runway for growth as e-commerce penetration in auto retail is only ~2%.” Babcock also pointed out that as Carvana’s financing platform continues to grow, it should bring in more auto loan investors, ultimately adding earnings stability. Its acquisitions of Adesa auction sites in the past few years will boost the number of vehicles Carvana can recondition per year, he said. The company has currently integrated 15 ADESA sites, and has 41 additional ones. “CVNA has taken significant steps to streamline its sourcing and logistics over the past few years,” Babcock wrote. “This will be key to enabling CVNA to achieve its targeted 3mm annual unit sales within the next 5-10 years and will also help drive higher GPUs. Further, with more [inspection and reconditioning centers], CVNA can complete the inspection and reconditioning process closer to where vehicles are ultimately sold, thereby reducing transport costs and delivery times.” Carvana shares, which are up 60% this year, gained more than 1% after Barclays’ bullish call.
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