Investors, start your engines.
Online used car retailer Carvana (CVNA) had some big news on Sept. 16. The company said it was teaming with Legacy Motor Club to give fans a chance to design the paint scheme for seven-time Nascar Cup Series champion Jimmie Johnson’s No. 84 Toyota in the upcoming Nascar Xfinity Series Championship.
Related: Analysts overhaul Carvana stock price targets after earnings
"Whether you’re a professional designer or an enthusiastic doodler, all skill levels are welcome to participate," Carvana said in a statement. Ryan Keeton, Carvana’s co-founder and chief brand officer, added that “we can’t wait to see what incredible designs fans come up with for Jimmie’s car.”
The event comes just days after Carvana announced a contest with the Professional Pickleball Association, where fans get a chance to win one of two vehicles and a trip to the CIBC PPA Finals in San Clemente, Calif.
Wait, pickleball? Nascar? What's going on here?
Carvana CEO: 'We were stubborn and ambitious'
Things seem to be going pretty well for the company, which sells vehicles from vending machines and says its mission is to "change the way people buy and sell cars."
"Over the past decade, Carvana has revolutionized automotive retail and delighted millions of customers with an offering that is fun, fast and fair," the Tempe, Ariz., company says.
But it wasn't that long ago when Carvana appeared to have reached a dead end.
In 2022, Carvana was labeled a “zombie company” by the equity research firm New Constructs, which said the group had “failed to generate positive free cash flow in any year since going public in 2017.”
The stock price tumbled, Carvana started cutting staff and the executive team said they would forgo their salaries for the rest of the year to contribute to the severance pay for departing employees.
Carvana, which is scheduled to report third-quarter results in November, aggressively restructured its operations and debt amid bankruptcy concerns to pivot from growth to cost-cutting. News reports started talking about an "epic turnaround."
Related: Analyst revamps Carvana stock price target after earnings
During the company’s earnings call in July, Co-Founder and Chief Executive Ernie Garcia told analysts that the second quarter “was another landmark quarter for Carvana.”
"We were stubborn and ambitious," he said. "I’m grateful for both. And I’m also grateful that we had no idea how hard it would be to get to this point."
"Being right about outcome and wrong about the path may be the most productive combination there is," he added. "From here, we believe the outcome is clear and exciting."
Carvana's stock has nearly tripled (up 183%) year-to-date and also from a year earlier (up 192%).
Meanwhile, consumers are becoming more agreeable to buying cars online, especially since the Covid-19 pandemic eased.
McKinsey & Co. said in a 2023 study that "based on our research, we believe the future of automotive retail will be digital and direct to consumer."
"Today, fewer than 3% of customers say they purchase vehicles fully online, but 29% of consumers indicate that they want to buy their next car entirely online," the consulting firm said. "An additional 23% say they would like to order online but require some physical touchpoints (for example, a test drive) along the purchasing journey."
Test drives, McKinsey said, "remain a critical issue, as close to 90% of customers say they still would like to experience the car before they purchase, especially for first-time [electric-vehicle] buyers."
Analyst: Carvana 'leading seller of used cars online'
Several investment firms issued research reports on Carvana, including Bank of America Securities, which reinstated coverage of the company on Sept. 17 with a buy rating and $185 price target, according to The Fly.
The investment firm says the "leading seller of used cars online" is well positioned for sustained long-term growth in a fragmented market that is recovering as prices normalize, car supply returns, and rates begin to fall.
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B of A said that it expected Carvana to maintain recent improvement in unit economics as well as leverage with efficiency gains and a relatively large fixed-cost base as growth accelerates.
Evercore ISI analyst Michael Montani raised the investment firm's price target on Carvana to $157 from $142 and affirmed an in-line (effectively neutral) rating on the shares. The analyst instituted a positive Tactical Trading Call on the shares while adding them to the firm's Tactical Outperform list.
The firm's meeting with Garcia and Chief Financial Officer Mark Jenkins last week showed their focus was on "delivering a great customer experience to drive sustainable share gain while eliminating pain points along the way," Montani said.
The analyst says the company is "well positioned for a beat and raise" third-quarter report and a positive catalyst path for the next month and a half.
On Sept. 11 Stephens initiated coverage of Carvana with an overweight rating and $190 price target.
The company combines a digital virtual showroom with a regionally centralized back end that enables economies of scale and generates superior financial metrics in virtually every area of the business, the firm said.
Stephens added that Carvana's superior economics and scaled processes enabled it to provide a higher quality, more convenient, lower cost consumer experience.
Carvana is already the most profitable used vehicle player on a per-unit basis and will be so based on earnings before interest, taxes, depreciation and amortization by year-end, the firm said.
Related: Veteran fund manager sees world of pain coming for stocks
