Carvana's (CVNA) Q3 unit sales are expected to exceed market expectations due to rising traffic to its website and improved conversion rates, with the three-day port strike set to be a minor issue, Wedbush Securities said in a note Monday.
Analysts, including Seth Basham, said they expect the company's Q3 unit sales to be 108,100, an increase from their previous estimate of 105,300 and above the consensus estimate of 106,000. This optimistic outlook is based on higher traffic to the Carvana website and better conversion rates due to increased inventory levels, which have increased 55% since April.
The analysts consider the three-day port strike a minor issue, but Hurricane Helene likely impacted sales in the Southeast at the end of the quarter, causing those sales to shift to October, according to the note.
While financing profitability may decline in Q4, and retail sales, especially margins, could face modest pressure due to seasonality, they expect there is more potential for upside than downside risk to the 2024 adjusted earnings before interest, taxes, depreciation, and amortization guidance of $1 billion to $1.2 billion, as well as the consensus forecast of $1.18 billion, the analysts said.
"Carvana is much better positioned to scale than pre-pandemic with better processes, procedures, reconditioning capacity, and megasite buildout plans, but rapidly increasing unit sales comes with operational risks. At the same time, continued heavy insider sales are a yellow flag," the analysts said.
Wedbush raised its price target on Carvana to $175 from $150 while keeping its neutral rating. The analysts said the rating remains the same "due to valuation and underappreciated challenges in rapidly scaling this operationally-intensive business."
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