Carvana‘s stock rebounded on Wednesday after losing most of its value this year.
Shares of the online car retailer gained as much as 7%, snapping a three-day losing streak to trade around $4.50. Even after Wednesday’s bounce,
‘s stock (ticker: CVNA) is down nearly 38% over the past month and 98% this year, on pace for its worst year on record, according to Dow Jones Market Data.
The stock’s recovery came on the same day as
‘s Naved Khan rating cut to Hold from Buy. Khan’s downgrade follows a similar move to the sidelines in the past month by analysts at Needham, Bank of America, and at least two other firms who also formerly held bullish outlooks. It’s a wait-and-see game for Wall Street when it comes to the stock; overall nearly 80% of all analysts tracking Carvana on FactSet rate it as Hold.
Khan said his rate cut -much like other analysts- is reflective of the risk to investors from a potential debt restructuring. Reports of Carvana’s s largest debtholders, including
Apollo Global Management,
Pacific Investment Management, and Ares Management, possibly unifying for a debt restructuring have made headlines recently. Binding together will help the creditors prevent fights and streamline negotiations in case of bankruptcy, but such speculations have helped drive Carvana shares to the ground.
Rising interest rates, input costs, and the entry of electric-vehicle maker Tesla (TSLA) into the used-car business have also contributed to this year’s selloff. Investors have also been concerned by Carvana’s announcements of layoffs and the lawsuits it faces for delays in getting vehicles registered to its customers.
To be sure, Carvana did show $316 million of cash in hand at the end of the third quarter and has nearly $2 billion in committed liquidity, plus roughly $2 billion in real estate assets. “But we believe finding buyers for sale/leaseback transactions to raise capital against its real estate assets will likely take some time to structure,” Khan said.
Carvana didn’t immediately respond to requests for comments on its plans to sell its real estate assets or Truist’s downgrade, but has previously told Barron’s that it is not involved in any cooperative agreement among bondholders and has enough liquidity to execute its future plans of profitability. The company posted losses per share for every quarter this year.
The analyst cut his target for the price to $5, down from $50 earlier on Wednesday. The average target price is $13.36.
Khan may have joined the bandwagon of analysts sitting on the sidelines late, but the line is growing nonetheless.
Write to Karishma Vanjani at firstname.lastname@example.org.