Carvana slumps as Morgan Stanley latest to downgrade, slash PT

Vroom

04/05/2022 14:11

** Carvana's  CVNA.N  shares down 5.2% at $54.37 premarket
after Morgan Stanley downgrades online used car seller to
"equal-weight" from "overweight", citing lower growth and higher
debt load
    ** Morgan Stanley slashes PT by ~70% to $105
    ** "By the company’s own admission, it had accelerated
growth at precisely the wrong time into a consumer slowdown
leaving a major mismatch between capacity and demand, creating a
liquidity crunch," MS analyst Adam Jonas writes in note
    ** In recent weeks, CVNA found itself in position of raising
capital at a time when co really needed it, coinciding with a
challenging high yield market, Jonas says
    ** CVNA last week priced ~$3.3 bln 10.25% junk bonds to fund
acquisition of auto auction house Adesa, with Apollo Global
Management  APO.N  reportedly buying about half the deal
 urn:newsml:reuters.com:*:nL2N2WQ1GQ
    ** On Tues, Wells Fargo also cut its CVNA rating to "equal
weight" and reduced its PT by nearly 60% to $65
    ** "Recent evidence suggests that macro headwinds are
building, access to capital is dwindling, and appetite for high
growth, FCF negative companies is becoming increasingly scarce,"
Wells analyst Zachary Fadem wrote, while similarly stepping to
sidelines on Vroom  VRM.O  and Shift Technologies  SFT.O 
    ** For CVNA specifically, Fadem also pointed to unfavorable
terms on the junk bond deal as a reason for the downgrade
    ** Fadem said he remains bullish on CVNA's long-term
opportunity, but thinks investors will shun the shares until it
can generate cash flow
    ** CVNA'a shares have shed ~40% since co on Apr 20 reported
sequential decline in retail units sold in Q1, impacted by high
used-vehicle prices, and raised $1.25 bln of equity at $80/sh
 urn:newsml:reuters.com:*:nL3N2WJ268
    ** YTD, shares have lost 75% through Tues close

 (Lance Tupper is a Reuters market analyst. The views expressed
are his own)
 ((lance.tupper@thomsonreuters.com
lance.tupper@tr.com 1-332-219-1430))