Wedbush Not Sure Carvana Survives Liquidity Issues

Carvana (NYSE: CVNA) shares are down a further 2% premarket, adding to its more than 97% decline this year after Wedbush analyst Seth Basham expressed significant concern about the company's current headwinds.

Basham maintained an Underperform rating and $1 price target on Carvana shares, stating that the “ill-timed” acquisition of Adesa's US physical auction business earlier this year is “an albatross around its neck.”

In addition, he said the acquisition adds to “deteriorating industry and company-specific outlooks,” and he sees Carvana's committed liquidity resources running out by early 2024.

As a result, the analyst Basham wouldn't be surprised to see some form of cash infusion in the coming months, but even so, he is not sure if that would be “enough for Carvana's equity to survive — let alone thrive — well into the future,” due to the deteriorating fundamentals.

On Tuesday, Citi analyst Ronald Josey initiated coverage of Carvana with a Neutral rating and a $5.50 price target.

However, Carvana has been downgraded on various occasions in recent months. At the start of December, BofA analyst Nat Schindler lowered the firm's rating on Carvana to Neutral from Buy with a price target of $10, down from $43, citing concerns about Carvana's cash burn and liquidity as the reason for the downgrade. 

He told investors in a research note that the company has been struggling to turn profitable, and with $600 million in annual interest expense, it is burning through cash quickly. The BofA analyst added that there is “no indication yet of a potential cash infusion,” and without one, the company could run out of cash by the end of 2023.