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UBS is betting on Carvana from here on out. The bank initiated coverage of the used-car e-commerce platform with a buy rating and a 12-month price target of $450, which implies upside of 20% from Friday’s close. Analyst Joseph Spak applauded Carvana’s potential as a “true disruptor and share gainer in highly fragmented market.” He believes that growth at the company is driven by a migration to online sales and its e-commerce platform, which offers customers a “better experience and often a better price.” CVNA YTD mountain CVNA YTD chart “CVNA has a differentiated, best-in-class online platform and customer experience that positions them to gain share in the large but fragmented used vehicle market,” he wrote. While Carvana is only around 1.5% of the used vehicle sales market, he believes that this could grow to around 4% by the end of the decade. As the company moves towards its 3 million used vehicle target over the next 10 years, he sees this market share swelling to 8%. While Carvana’s retail gross profit per unit is already around two times the industry average, Spak pointed out that the company is growing significantly faster — and that this profitable growth appears to be sustainable. “We believe the company is well positioned to improve GPU as they continue to generate more efficiencies and unlock savings from investments in inspection and reconditioning centers (IRC) as well as continued integration of ADESA auction sites,” he added. “This should not only allow for sufficient capacity to hit their ~3mm unit target within 5-10 years but also drive higher GPUs.” Because of Carvana’s unique status as both an auto retail and internet marketplace company, Spak said that his multiple implies stronger growth and sits above other auto retailers and closer to higher-growth internet firms. Shares of Carvana have gained 84% this year.
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