The cost of capitalization of Caravan is approaching zero
2022.11.30 10:41
The cost of capitalization of Caravan is approaching zero
Budrigannews.com – The Carvana CompanyOn Wednesday, BofA downgraded the shares from Buy to Neutral with a price target of $10 per share, down from $43, marking the fifth downgrade in two weeks based on the company’s cash crunch.
According to BofA analysts, Carvana’s “cash tank is running low” and the company is “likely to run out of cash by the end of 2023” without an infusion.
“Carvana has struggled to become profitable, and with annual interest costs of $600 million, the company is quickly running out of cash.
The company currently has $477 million in cash—including restricted cash—and $2.6 billion in inventory, which is vastly outweighed by its $6.6 billion in LT notes payable.
According to the analysts, “Moody’s downgraded the company’s outlook to negative, from stable, on November 21st, and affirmed a Caa1 rating.”
“It is impossible to predict if and when that would occur,” the analysts added, “no indication yet of a potential cash infusion, for example from the Garcia family (the CEO and his father the chairman).”
They believe that because of this and the high short interest, this stock’s performance appears to be binary:It is impossible to assign probabilities to the catalysts that would determine these outcomes (such as a cash infusion), and either it goes to zero or it is worth many times its current price of $7.34.”
“A turnaround could be aggressive should outside financing become available, despite the fact that current valuations imply a significant likelihood that the equity value will fall to zero. Our bull case assumes that the business can raise capital and keep it liquid for long enough to cut costs and become profitable.
The company is trading at only 4x 2022 EV/EBITDA if reasonable long-term EBITDA margins of 13.5 percent are applied to its 2022 revenue numbers.a low multiple in comparison to its previous triple-digit growth in the top line. Our bear case is straightforward:The analysts asserted, “The equity value will reach zero if there is no cash infusion.”
On Wednesday, Carvana shares are down an additional 5%.
