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Carvana (NYSE:CVNA) shares fell on Friday after a disappointing third-quarter earnings release and a disappointing outlook that raised concerns about bankruptcy.
While Morgan Stanley’s Adam Jonas has long broadly supported Carvana’s (CVNA) business model, he withdrew his rating on the stock following poor results and a bearish fourth-quarter outlook overall.
“Secured borrowing capacity may be available, but we believe shareholders also face significant risk of dilution, leading to a variety of outcomes and leading us to remove rating and target,” Jonas told clients on Friday.
Along with the removal of its previous Equal Weight rating on the name, it has trimmed its price target ranges, replacing a $60 price target assigned in October with a $1 to $40 base range and a bear drop of just $0.10 -dollar was replaced.
“While the company continues to pursue cost-cutting measures, we believe that a deterioration in the used car market combined with a volatile interest rate/financing environment (bonds are trading at a 20% yield) add significant risk to the outlook and contribute to a wide range of results ( positive and negative),” he concluded. “As such, we believe it is prudent to remove our rating and price target and set a 12-month base case range of $1-$40 (bull case $70/share, bear case $0.10/share). dollar/share).”
The company’s 5.875% and 5.5% notes, which mature in 2028 and 2027 respectively, fell to all-time lows below $0.40 around midday, according to Bloomberg data.
Carvana’s 30.87% drop on Friday extends the stock’s fall over the past year to over 97%. The stock’s 52-week low of $9.83 set on Friday is a far cry from the 52-week high of $307.11 set in November 2021.
Read more about why Steven Cress, Head of Quantitative Strategies at SeekingAlpha, says the company is in “zombie territory”.