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Why Shares of Carvana, AutoNation, and Copart Surged in April

By John Rosevear – May 4, 2020 at 10:43AM

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There's something about all three that made them especially attractive to investors last month.

What happened

Shares of several companies related to the business of selling cars surged in April, as investors sought out companies that were well situated to weather the coronavirus pandemic and its likely economic aftermath. 

Here's how each of these companies' stock prices fared in April, according to data provided by S&P Global Market Intelligence.

  • AutoNation (AN -0.03%) was up 32.7%.
  • Carvana (CVNA -2.85%) was up 45.4%.
  • Copart (CPRT 1.01%) was up 16.9%.

^SPX Chart

^SPX data by YCharts. Chart shows price changes from the market's close on March 31 through close on April 30, 2020. 

So what

Before we dive into specifics about these three companies, here's some context for their stocks' big rallies in April: They all got clobbered, along with much of the rest of the market, in March. 

While their performance in April was very good, all three still trail the S&P 500 Index year-to-date through April 30. 

^SPX Chart

^SPX data by YCharts. Chart shows price changes from January 1 through April 30, 2020.

But with that note, it's still worth asking: How did all three of these companies surge in April, a month when U.S. auto sales were probably down by more than 50%?

The answer is pretty simple. Salvaged-car auctioneer Copart and used-car seller Carvana do much of their business online, ideal for an extended period of sheltering-in-place to slow the spread of the COVID-19 virus. AutoNation, which owns more than 360 new- and used-car dealerships, also makes many of its sales via its comprehensive website and was better-prepared than most dealership groups for socially distanced auto sales. 

A Carvana "vending machine" dealership in Houston.

Image source: Carvana Co.

Beyond that general observation, here are the key events that might have moved these stocks in April.

AutoNation

  • On April 12, AutoNation announced that CEO Cheryl Miller, who took the top job in July of 2019, is taking an extended leave of absence for health reasons. Chairman and former CEO Mike Jackson and Chief Operating Officer Jim Bender have stepped in to lead the company during her absence. 
  • In a note on April 27, Northcoast analyst John Healy upgraded AutoNation to Buy, from Neutral, with a price target of $40. He thinks low interest rates and possible stimulus programs could drive sales that outperform expectations, while its parts and service operations cover most of its dealers' fixed costs.

Carvana

  • Carvana ended the month of March by withdrawing its 2020 guidance, announcing a series of cost reductions, and raising $600 million in cash via the direct sale of stock to existing investors. 
  • On April 6, it said that it will allow customers 90 days to make their first loan payment. 
  • In a note on April 9, Wells Fargo analyst Zachary Fadem reiterated the equivalent of a Buy rating on the stock while boosting his price target to $75, from $50. Fadem raised his price target again, to $95, in a follow-up note on April 21.
  • Taking a different view in a note on April 22, Morgan Stanely analyst Armintas Sinkevicius cut his price target on Carvana to $25, from $27, while maintaining the equivalent of a Sell rating on the stock. While acknowledging that Carvana's recent capital raise reduces the downside risk, he still thinks that Carvana will fall short of consensus sales estimates in 2020.

Copart

Copart itself said little in April. It had said in a regulatory filing on March 19 that it drew down its lines of credit iand had more than $1 billion in cash on hand as of that date.

  • In a note on April 9, Jeffries analyst Bret Jordan upgraded Copart to Buy, from Hold, with a price target of $84. Jordan wrote that while COVID-190 will disrupt operations in the near term, he remains bullish on long-term trends in the automotive aftermarket -- and he thinks that supplies of damaged cars could rise if roads are congested while people avoid public transit during the post-virus recovery. 
  • In a note on April 23, J.P. Morgan analyst Ryan Brinkman upgraded Copart to Neutral, from the equivalent of Sell, with a $65 price target. He thinks the company's prospects (and shares) could rise as buyers return to auto dealers after stay-at-home orders are lifted.

Now what

Auto investors won't have to wait long for detailed updates, as all three companies are likely to report earnings in may. Carvana is up soon: It'll report its first-quarter earnings result on Wednesday, May 6. 

As of right now, AutoNation and Copart haven't yet announced dates for their next earnings reports, but both typically report before the end of May.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool recommends Copart. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AutoNation, Inc. Stock Quote
AutoNation, Inc.
AN
$106.96 (-0.03%) $0.03
Copart, Inc. Stock Quote
Copart, Inc.
CPRT
$106.14 (1.01%) $1.06
Carvana Stock Quote
Carvana
CVNA
$26.20 (-2.85%) $0.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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