Carvana Gets Downgrade From Analyst Who Favors These Two Used Car Companies Instead

The growth of the used car market was sized up by an analyst Tuesday offering three stocks to watch. 

The Carvana Analyst: Piper Sandler analyst Alexander E. Potter downgraded shares of Carvana Co (NYSE: CVNA) from Overweight to Neutral and raised the price target from $303 to $306.

The Analyst Takeaways: Carvana shares are now fairly valued after a 160% increase over the last 52 weeks according to the analyst.

“There’s a price for everything and we think CVNA is now fairly valued,” Potter said.

The analyst believes Carvana will sell more than one-third of all used cars in the U.S. The used car market modeled by the analyst is 18 million to 20 million units annually.

“A higher estimate would feel aggressive,” he said.

The analyst’s model of 30% market share by the 2030s is the basis for the price target. Carvana could see a gross profit of $5,000 per unit with used car prices of around $20,000.

Related Link: Consumer Demand Fuels Carvana Upgrade

Other Stocks to Watch: While Carvana gets downgraded, Potter prefers two other companies in the online car sales market.

“SFT is our favorite alternative to CVNA with a similar business model and a reliance on in-house reconditioning,” Potter said.

Shift Technologies Inc (NASDAQ: SFT) uses its own team for reconditioning and logistics, which Potter believes is a key catalyst for the company. As Shift scales, the company could use its balance sheet to write car loans, Potter notes.

The analyst has an Overweight rating on Shift Technologies and raised the price target from $14 to $16.

Potter also has an Overweight rating on Vroom Inc (NASDAQ: VRM) and a price target of $58. Potter calls Vroom a good option for investors looking for a non-small-cap stock in the sector.

CVNA Price Action: Shares of Carvana are down 1/35% to $301.36 on Tuesday.