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Carvana’s recent rally may be reaching its end, according to Piper Sandler. The company’s shares rose more than 20% this week after Carvana announced better-than-expected second quarter results and an agreement to restructure approximately $5.2 billion in debt on Wednesday. However, Piper Sandler’s long-term outlook on the company’s share in the used vehicle market remains unchanged. Analyst Alexander Potter downgraded shares to neutral from overweight. While he increased his price target to $48 from $29, his new price objective is less than $2, or just 2.7% above where shares closed Thursday. “We upgraded CVNA last September on the basis the company was trading at a significant discount to intrinsic value due to bankruptcy risk – which we thought was unlikely. Now that the bankruptcy scare has abated, and the stock has risen to $47, we believe CVNA is approaching a fair valuation,” Potter wrote in a Thursday note. “Chasing the stock higher would necessitate an upward revision to CVNA’s long-term used vehicle market share expectations, which we do not believe recent results substantiate,” Potter added. Potter noted that “it remains to be seen” whether the company can maintain cost discipline at higher volumes. Volatile vehicle pricing, regulatory changes, macro shocks and high capital intensity are among the other downside risks to the company’s growth mentioned by the analyst. Potter wasn’t the only analyst to downgrade Carvana this week. RBC’s Brad Erickson lowered his rating on the stock to underperform from sector perform , noting that any long-term margin improvements are likely priced in at this point. Shares declined 0.7% Friday premarket after tumbling more than 16% during Thursday’s trading session. The stock is still up more than 880% year to date. CVNA YTD mountain CVNA in 2023 — CNBC’s Michael Bloom contributed reporting.
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