Carvana shares surge 24% after company projects record quarter

Ernie Garcia, CEO, Carvana

Scott Mlyn | CNBC

Shares of Carvana jumped after the online used car marketplace said it expects to set records in several categories during its third quarter, including total revenue and retail units sold.

Shares were up 24% in premarket trading.

The company previously declined to give forward guidance for the quarter, citing uncertainty from the Covid-19 pandemic. Carvana has averaged about $1.1 billion in sales over the last four quarters and sold just over 55,000 retail units in the second quarter of this year. 

The company also said it expects to be breakeven on an earnings before interest, taxes, depreciation and amortization basis. That margin was  a negative 6.2% during the second quarter. 

“The momentum that we saw in the second quarter accelerated into the third, leading to record performance for Carvana in metrics that demonstrate strong progress both in growth and towards profitability,” Carvana CEO Ernie Garcia said in a release. The company announced that it will issue up to $1 billion in new debt, which will be used to retire existing debt and other purposes.

Additionally, Goldman Sachs upgraded the stock to buy from hold on Tuesday. The firm said in a note that it expected retail unit sales to hit 48% year over year in the third quarter, up 25% from the second quarter. 

“Carvana’s scale and vertical integration position it best to drive the used auto category online for many years, in our view. While tighter supply and operational challenges from COVID-19 weighed on growth in Q2, a loosening supply backdrop … and a re-acceleration in app downloads … drive our estimates higher while the stock has traded lower,” the note said.

Goldman raised its price target on the stock to $205 per share from $178. The premarket climb for the stock put it above that target price.

Shares of the company had already gained more than 88% year to date before Tuesday’s surge. The jump in price puts Carvana’s market cap comfortably above the $30 billion level. 

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