UBS continues to bet on Carvana. The bank initiated coverage on the used car e-commerce platform with a buy rating and a 12-month target price of $450. This represents a 20% increase from Friday’s closing price. Analyst Joseph Spak praised Carvana’s potential as a “true disruptor and share gainer in a highly fragmented market.” He believes the company’s growth will be fueled by a shift to online sales and e-commerce platforms, providing customers with “a better experience and often better prices.” CVNA YTD Mountain CVNA YTD Chart “CVNA has a differentiated, best-in-class online platform and customer experience that positions us to capture share in the large but fragmented used vehicle market,” he wrote. Carvana only accounts for about 1.5% of the used car sales market, but he believes this could grow to about 4% by the end of the decade. He expects this market share to grow to 8% as the company moves toward its goal of 3 million used cars over the next 10 years. Although Carvana’s retail gross margin per unit is already about twice the industry average, Spak noted that the company is growing significantly faster and that this profitable growth is sustainable. “We believe the company is well-positioned to improve its GPUs as it continues to drive efficiencies and realize savings from investments in its Inspection and Remanufacturing Center (IRC) and continued integration of the ADESA auction site,” he added. “This should give us enough capacity to reach up to 3mm unit targets within five to 10 years, as well as drive higher GPUs.” Because Carvana has a unique position as both a car retail and internet market company, Spack said his multiple means stronger growth, positions it higher than other car retailers and closer to high-growth internet companies. Carvana’s stock price has risen 84% this year.
