What happened
Shares of Carvana (CVNA 0.50%) were moving higher today after one analyst raised his price target on the online used car company, and Carvana benefited from a lower-than-expected inflation report, which will help keep interest rates from going higher.
As a result, the stock was up 10.4% as of 3:32 p.m. ET.
NYSE: CVNA
Key Data Points
So what
JMP Securities analyst Nicholas Jones raised his price target on Carvana from $25 to $50 and maintained an outperform rating on the stock, arguing that the company has significant potential to benefit from multiple expansions as it moves toward profitability.
He also said while the company didn't need to raise additional capital, a rising stock price would make it easier to do so without significantly diluting shareholders.
Additionally, this morning's consumer price index report showed that inflation rose just 3% year over year, its lowest level since March 2021, and core inflation, which excludes food and energy, was 4.8% year over year, its lowest rate since October 2021. On a month-over-month basis, both figures rose just 0.2%.
Overall, those numbers show inflation cooling faster than expected. Higher interest rates are a headwind both for Carvana directly and for its customers. The company has nearly $7 billion in debt, which is hampering its recovery and its ability to turn a profit, and higher rates also make it more expensive for customers to finance cars.
While the Federal Reserve still expects to raise baseline interest rates by another 50 basis points this year, falling inflation could change that forecast and makes it likely that interest rates are close to their peak if not already there.
Now what
After falling as much as 99% from peak to trough, Carvana stock has been on an impressive run this year as the company has cut costs, reduced inventory, and staked out a path to positive free cash flow.
The stock is now up more than 700% year to date and could move even higher if the macroeconomic picture continues to improve and the company moves closer to profitability.
It already said it expects to report an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit of $50 million, a sign that it's on the right track.
