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Carvana reported earnings on Wednesday, moving up the release date by two weeks.
Mark Ralston/AFP/Getty Images
Carvana
stock reversed earlier losses to surge Wednesday after reporting its best ever quarter for profit, and announcing a debt restructuring deal.
The used-car retailer also launched plans to raise up to $1 billion by selling up to 35 million shares through an at-the-market offering, according to an SEC filing.
The shares had fallen 10% initially in the premarket session after the company spooked investors by bringing forward its second-quarter earnings by two weeks. But there was no need for investors to worry. Shares gained 40% on the day.
Carvana said the second quarter was its best ever for adjusted Ebitda—$155 million—and for profit per unit, which came in at $6,520. The online auto retailer reported revenue of $2.97 billion in the second quarter, beating expectations of $2.6 billion, according to FactSet data. It posted a net loss of 55 cents a share, better than the loss of $1.20 a share loss estimated by analysts.
The online auto retailer also announced an agreement to reduce its outstanding debt by more than $1.2 billion, which appears to be the reason behind the switch to its earnings date. The agreement with bondholders will eliminate more than 83% of Carvana’s 2025 and 2027 unsecured note maturities and lower its required cash interest expense by $430 million per year for the next two years, the company said.
“The strong performance of our business in 2023 presented an opportunity for an impactful and win-win transaction for Carvana and its senior unsecured noteholders,” Chief Financial Officer Mark Jenkins said. The deal “significantly increases our financial flexibility,” he added.
The stock has climbed more than 1,000% to $55.80 so far in 2023, as of Wednesday’s close. The shares closed with a gain of 9% on Tuesday.
“We applaud CVNA’s ability to improve their profitability and restructure their balance sheet at [a] time when unit demand remains soft,” D.A. Davidson analyst Michael Baker said. He maintained a Neutral rating on the stock with a price target of $18.
J.P. Morgan analysts downgraded the stock to Underweight from Neutral on Friday, arguing that Carvana’s valuation has gone beyond the level justified by recent improvements in the business. They have a target price of $10 on the stock, which closed at $39.80 Tuesday.
Write to Callum Keown at [email protected]
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