Bank of America downgrades Carvana, says stock could go to zero without a cash infusion

Published Wed, Nov 30 20227:31 AM EST

Hold off on Carvana for now as the stock could go one of two ways, according to Bank of America. Analyst Nat Schindler downgraded Carvana to neutral, saying that the online car retailer is badly in need of more liquidity as it struggles to turn profitable. "We now believe that without a cash infusion, Carvana is likely to run out of cash by the end of 2023. There is no indication yet of a potential cash infusion, for example from the Garcia family (the CEO and his father the chairman), and it is impossible to predict if and when that would occur," Schindler wrote in a Wednesday note. "This combined with the high short interest creates a situation where this stock's performance looks binary: either it goes to zero or it is worth many times its current price of $7.34, and assigning probabilities for the catalysts that would determine these outcomes (such as a cash infusion) is impossible," Schindler added. The analyst also slashed his price target on the stock to $10 from $43. The new represents more than 35% upside from Tuesday's closing price of $7.34. Shares of Carvana tumbled this year as rising interest rates soured investor sentiment against unprofitable growth companies. The auto retail stock is down more than 96% this year. The company continues to deal with a raft of issues as it burns through cash. According to the note, the retailer has roughly $600 million in annual interest expenses. Meanwhile, Moody's earlier this month downgraded the outlook for Carvana to negative, from stable. However, a cash infusion could mean a rapid turnaround for the company, according to the analyst. "Current valuations imply a significant likelihood that the equity value falls to zero, but a turnaround could be aggressive should outside financing become available. Our bull case assumes that the company is able to raise capital, keeping it liquid long enough to cut expenses and reach profitability," Schindler wrote. "Our bear case is quite simple: without a cash infusion, liquidity will dry up and the equity value goes to zero." —CNBC's Michael Bloom contributed to this report.