(Bloomberg) — Carvana Co. shares plunged to the lowest in more than five years after a Morgan Stanley analyst pulled his rating on the auto retailer and said its stock could be worth as little as $1.
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The deteriorating used-car market and volatile interest-rate and funding environment “add material risk to the outlook,” Morgan Stanley’s Adam Jonas said in a note Friday after Carvana reported quarterly results that missed estimates. He pulled his $68 price target and said his new base case is that the company may be worth $1 to $40 a share.
Carvana declined as much as 42% in New York trading to $8.37, the lowest intraday price since May 2017. Jonas had a $430 price target for the stock as of early March and rated it the equivalent of a buy in early May.
Rising borrowing costs and declining used-car prices are slamming auto retailers that were thriving only months ago, when they could offer cheap loans to consumers and cash in on record values of vehicles at auctions. Chief Executive Officer Ernie Garcia said Thursday that Carvana is bracing for weaker industry demand and higher rates of depreciation.
“We are building our plans around assumptions that the next year is a difficult one in our industry and the economy as a whole,” he said on an earnings call.
Carvana shares traded above $370 as recently as August of last year. The stock’s tumble has burned high-profile investors including Tiger Global Management, which slashed its stake during the second quarter, and Baillie Gifford & Co.
The company’s 5.875% senior unsecured bonds maturing in 2028 fell about 4.5 cents on the dollar to about 39.5 cents as of 11:03 a.m. Friday in New York, the lowest on record, according to Trace data. Its 5.5% notes due 2027 fell about 4 cents to 40 cents.
–With assistance from Subrat Patnaik.
(Updates with background starting in the fourth paragraph.)
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