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Carvana Upgraded by Morgan Stanley on Expansion Potential

Morgan Stanley analyst Adam Jonas raised his share-price target on Carvana to a Wall Street high $420, after the used-car dealer posted strong revenue.
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Carvana  (CVNA)  shares rose on Friday as Morgan Stanley analyst Adam Jonas upgraded the online used-car retailer and nearly doubled his price target on the stock, to a Wall Street high of $420 from $225.

Jonas upgraded the stock to overweight from equal weight. Jonas acted after Carvana posted revenue of $1.83 billion for the fourth quarter. That's up 65% from $1.1 billion in the year-earlier quarter and above the consensus analyst forecast of $1.6 billion.

The company's net loss widened to 87 cents a share from 82 cents in the year-earlier quarter. Shares outstanding rose 46% to 73.2 million.

Carvana has benefited from strong demand for autos and for contactless purchasing during the COVID pandemic. 

The stock recently traded at $293.63, up 11%. It has nearly tripled over the past year.

To be sure, earlier this month Founder Jim Cramer warned about speculative froth in hot stocks like Carvana.

Jonas said in a commentary cited by Barron’s that Carvana "is uniquely positioned to serve an automotive and transportation [addressable market] that goes far beyond the used-car market, driving potentially far higher growth that is not reflected in today’s share price.” 

“In our opinion, describing Carvana as just a ‘used car dealer’ is like describing Amazon  (AMZN)  nearly two decades ago as just an online bookseller.”

Jonas also sees potential for Carvana to shine in related automotive and fleet-management segments. 

“While it may take several years before Carvana enters such markets at scale, … we don’t believe it’s too soon for investors to consider the outcomes today,” he said.

In December, Jefferies initiated coverage of Carvana with a buy rating and a price target of $300.