By Sam Boughedda
Carvana Co. (NYSE:CVNA) was downgraded to Neutral from Outperform, with its price target slashed to $15 from $50 per share at Wedbush on Tuesday.
Analysts at Wedbush told investors that while they have been cautious about the near-term outlook for Carvana for some time, they have maintained a positive long-term outlook given the potential for "solid unit economics at scale."
"However, a further deterioration in market conditions, a bloated cost structure, and high cash burn make this potential less likely to achieve as signaled by its 2030 unsecured bonds trading at ~60 cents on the dollar," wrote the analysts. "CVNA's acquisition of Adesa's U.S. physical auction business earlier this year is an albatross around its neck, not only adding $336m of incremental annual interest expense due but also saddling the company with additional reconditioning capacity that it does not need."
Wedbush said its updated forecasts "call for CVNA not being able to maintain enough cash to meet its floorplan requirements and finance its business through 2023 without additional committed liquidity sources."
"CVNA will need to begin considering how to refinance its $500m senior notes due 2025. Accordingly, we expect CVNA to preemptively address its cash needs in the coming months through a capital raise and/or real estate sale (mainly Adesa sites contained in its $2.1b of non-cash liquidity resources)," the analysts concluded.