Needham says Carvana stock could double as management lowers guidance

Carvana CVNA opened in the “red” this morning as management’s lowered guidance tempered the firm’s record Q2, featuring a 38% increase in retail units sold.

Still, Needham’s senior analyst Chris Pierce recommends buying the dip in CVNA, noting it could actually double from current levels over the next 12 months.

That said, the muted outlook adds to pressure on Carvana stock that was already down nearly 40% heading into the earnings release.

What made Carvana lower its full-year guidance?

Carvana now expects full-year adjusted EBITDA to fall between $2.7 billion and $3.0 billion.

While that still suggests a meaningful increase on a year-over-year basis, the midpoint of that range missed the $2.99 billion consensus by a significant margin.

In the earnings release, management cited some pressure on Gross Profit per Unit (GPU) non-retail components, temporary inventory rebalancing costs, and broader consumer spending uncertainty amidst a higher-for-longer interest rate environment.  

While Q2 net income hit a robust $769 million, traders focused heavily on the “moderated” near-term margin expectations, leading to short-term profit-taking in CVNA shares.

Adding to pressure is algorithmic selling as Carvana tumbled through its 20-day moving average (MA) – a technical breakdown that often accelerates bearish momentum in the near-term.

Why Needham recommends buying CVNA shares today

In a note to clients, Needham’s Chris Pierce urged investors not to get bogged down by short-term metric noise.

Pierce maintained CVNA on Needham’s coveted Conviction List – emphasizing that the market is overreacting to temporary guidance tweaks rather than focusing on durable unit volume growth.

Needham’s $120 target values Carvana shares at roughly 30x its estimated 2028 adjusted EBITDA and assumes the company will ultimately achieve its long-term milestone of 3 million annual retail sales at 12.6% margins.

According to the Needham analyst, the current valuation bakes in an excessively pessimistic timeline, ignoring CVNA’s unmatched infrastructure advantages, proprietary artificial intelligence (AI) logistics, and expanding nationwide reconditioning network.

How to play Carvana stock after Q2 earnings

While guidance adjustments can spark immediate market turbulence, Carvana’s core disruption of the highly fragmented $1 trillion US used vehicle market remains firmly intact.

By leveraging central reconditioning hubs and direct-to-consumer delivery, the company operates with structural cost advantages over traditional dealership networks.

Short-term margin volatility often creates disconnects between intrinsic value and market price.

For growth-oriented investors with a 12-to-36-month horizon, Needham's bullish analysis suggests the current dip presents a “compelling risk-reward entry point” before CVNA stock’s next leg of operational expansion takes hold.

Crucially, other Wall Street firms seem to agree with Needham on Carvana Co as well.

According to The Wall Street Journal, the consensus rating on the online car retailer remains at “Overweight”, with the mean price target of about $86 indicating potential upside of about 45% from here.