Carvana
stock reversed earlier losses to surge in premarket trading Wednesday after reporting its best ever quarter for profit, and announcing a debt restructuring deal.
The stock, up 46% at one point in premarket trading, was rising 18% at last check.
The shares had fallen 10% initially in the premarket session after the company spooked investors by bringing forward its second-quarter earnings by two weeks. But there was no need for investors to worry.
Carvana said the second quarter was its best ever for adjusted Ebitda—$155 million—and for profit per unit, which came in at $6,520. The online auto retailer reported revenue of $2.97 billion in the second quarter, beating expectations of $2.6 billion, according to FactSet data. It posted a net loss of 55 cents a share, better than the loss of $1.20 a share loss estimated by analysts.
The online auto retailer also announced an agreement to reduce its outstanding debt by more than $1.2 billion, which appears to be the reason behind the switch to its earnings date. The agreement with bondholders will eliminate more than 83% of Carvana’s 2025 and 2027 unsecured note maturities and lower its required cash interest expense by $430 million per year for the next two years, the company said.
“The strong performance of our business in 2023 presented an opportunity for an impactful and win-win transaction for Carvana and its senior unsecured noteholders,” Chief Financial Officer Mark Jenkins said. The deal “significantly increases our financial flexibility,” he added.
The stock has climbed 740% so far in 2023 as of Tuesday’s close. The shares closed with a gain of 9% on Tuesday.
J.P. Morgan analysts downgraded the stock to Underweight from Neutral on Friday, arguing that Carvana’s valuation has gone beyond the level justified by recent improvements in the business. They have a target price of $10 on the stock, which closed at $39.80 Tuesday.
Write to Callum Keown at [email protected]
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