Carvana shares fall as analysts call Q2 profit forecast ‘one-time’ upside

By Aishwarya Nair and Priyamvada C

(Reuters) -Shares of used-car retailer Carvana Co (NYSE:) tumbled 12.5% in afternoon trading on Friday, as analysts suspect that the debt-laden company’s upbeat second-quarter profit forecast is a ‘one-time’ upside.

The shares were up earlier in the session. On Thursday they had surged as much as 68% to $26.09 with some help from traders covering their bearish bets after the company forecast more than $50 million in current-quarter adjusted core profit, exceeding expectations of most analysts.

While analysts have been encouraged by the outlook, they do expect more gains as the company has been struggling to sell cars acquired at elevated prices, with buyers restricting their spend due to concerns of an impending recession, and has taken a slew of cost-cut measures.

They believe the improved outlook was a result of the sale of receivables.

“We believe the sale of receivables is likely one time in nature as CVNA pushed off sales of receivables in 4Q22 and the banking crisis in 1Q23 was a drag on receivables sales,” said Michael Baker, analyst at D A Davidson.

Carvana, known for its car-vending machines, said it sold or securitized loans worth about $2 billion as of June 8, compared with $1.3 billion sold or securitized as of May 4.

Analysts also echoed worries about Carvana’s plans to profitably return to growth given the existing debt load.

“We found management’s commentary on returning to growth profitably while potentially exploring the capital markets as hard to reconcile given the existing debt load and the difficulty of maintaining an unprecedented fixed cost efficiency amidst that rebound,” RBC analyst Brad Erickson said.

Last month, Carvana said it expects to post a profit in the current-quarter and planned to further bring down excess used-car inventory.

“Volume is still decreasing year-over-year,” Carvana chief Ernest C. Garcia said in a conference on Thursday.