Morgan Stanley sees nearly 40% downside risk for Carvana stock

In a note Monday, Morgan Stanley analysts maintained an underweight rating on Carvana (NYSE: CVNA) shares, raising the price target to $75 from $45. This suggests a 40% downside risk from current levels.

Throughout 2023, Carvana transitioned from a distressed equity into an operational turnaround with a restructured interest burden, says Morgan Stanley, highlighting the "official return to growth" in 2024, with a 1Q 16% year-on-year growth in retail units sold after six consecutive quarters of declines.

"The return to profitable growth with FCF has triggered a narrative shift in the stock, reducing the risks of equity dilution and making the name relevant again to growth investors," said the bank.

Assessing the last time it traded above $100 per share, Morgan Stanley said the company's margin profile is much stronger today than in April 2022.

However, while they can justify the majority of CVNA's run-up in market valuation, the bank believes the company's current Price to Sales "appears a bit rich," given the economic and execution risks that still lie ahead.

To achieve the $180 bull case, Morgan Stanley believes CVNA "must show a credible path to achieving a 25% revenue CAGR and double-digit EBITDA margins by the end of the decade."

By Sam Boughedda

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