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Why Cars.com Popped as Much as 23% Today

By Howard Smith – Oct 15, 2020 at 11:24AM

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The digital car-sales platform company was upgraded by analysts after it posted strong preliminary results for the third quarter.

What happened

Shares of Cars.com (CARS -1.59%) resisted the negative economic sentiment pervading the broader market and jumped by more than 20% at the market open Thursday. As of 11:20 a.m. EDT, shares remained up by about 16%.

The automotive marketplace platform operator provided preliminary third-quarter results, and received two analyst upgrades on the news. 

So what 

At the midpoint of its expected revenue range for the third quarter, the company forecasts a 40% jump in sales compared to the second quarter. 

man pressing screen on a car implying online car shopping

Image source: Getty Images.

Management also said it expects adjusted EBITDA margins to be between 33% and 34%, compared to 23% for the previous quarter. Though it still expects a net loss of between $10 million and $12 million, the company attributed that mainly to a $31 million non-cash charge related to income tax on an impairment recorded earlier in the year. 

Now what

The preliminary results prompted two analyst firms to lift their ratings on Cars.com to a buy, and to set new price targets on the stock well above Wednesday's closing price of $8.01 a share. B. Riley FBR and Craig-Hallum issued new price targets of $11 and $14, respectively. In the note explaining its upgrade, B. Riley FBR pointed to the growth of Cars.com's dealer network and its debt-reduction efforts. 

In its press release, Cars.com stated that consumers are embracing its platform as a tool to connect to car dealers digitally, reflecting a trend toward greater e-commerce use that has been seen across many segments during the pandemic. The company realized net growth of almost 100 dealer customers during the quarter, and paid down approximately $48 million in debt.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Cars.com Inc. Stock Quote
Cars.com Inc.
CARS
$14.81 (-1.59%) $0.24

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