As COVID-19 increases uncertainty and financial pressure on many industries, Carvana (CVNA 40.07%) announced a public offering Monday after market close in a move to improve its liquidity. Carvana, a leading e-commerce platform for buying and selling used cars, is proposing to sell 5 million shares of Class A common stock. The company had just over 64 million shares outstanding as of May 1, 2020. Citigroup and Wells Fargo Securities will act as book-running managers and the target price range will be $93 to $96 per share, according to Bloomberg. Carvana will use the proceeds for general corporate purposes and to partially repay borrowings with its credit facility.
While share dilution isn't favorable for Carvana investors, this is a positive move to bolster the company's liquidity as used car prices fall, sales slow, and a recovery timeline remains uncertain. Carvana is naturally well positioned as a vehicle e-commerce platform with delivery options that help consumers purchase vehicles without traditional dealership interactions. Carvana's stock has performed better than the S&P 500 over the past three months, and far better than the vast majority of auto stocks.
Echoing Carvana's favorable position during and after COVID-19 was Oppenheimer analyst Brian Nagel. Nagel recently increased his Carvana price target from $95 to $127 per share and noted, "While COVID-19 headwinds are apt to persist nearer term, we increasingly believe that on the other side of the crisis, a sustained, even more-favorable backdrop for preowned vehicles and well-positioned, digitally driven players, such as CVNA will take hold."
But Carvana must first weather the COVID-19 storm, and this public offering and additional liquidity will help that effort.