Carvana collapses after Morgan Stanley warns it could be a $1 stock

(Bloomberg) — Shares of Carvana Inc plunged to their lowest level in more than five years after a Morgan Stanley analyst withdrew his rating of the auto retailer and said its stock could be as low as $1.

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The deteriorating used-car market, volatile interest rates and the financing environment “add material risks to the outlook,” Adam Jonas at Morgan Stanley said in a note Friday after Carvana reported below-expected quarterly results. He withdrew his $68 target price and said his new base condition is that the company could be worth between $1 and $40 a share.

Carvana’s stock was down 39% to $8.76 in New York trading, its lowest close since May 2017. Jonas had a price target of $430 per share as of early March and ranked it equivalent to buying in early May.

Rising borrowing costs and lower prices for used cars have led to criticism of auto retailers who were thriving just months ago, when they could offer cheap loans to consumers and take advantage of record car values ​​at auctions. Chief Executive Officer Ernie Garcia said Thursday that Carvana is preparing for weaker industry demand and higher consumption rates.

“We’re building our plans around assumptions that next year will be a tough year for our industry and the economy as a whole,” he said on an earnings call.

Carvana shares were trading above $370 as recently as August last year. The stock crash has burnt prominent investors including Tiger Global Management, which cut its stake during the second quarter, and Baillie Gifford & Co.

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The company’s 5.875% unsecured bonds due in 2028 fell to a record 36 cents on the dollar Friday afternoon in New York, according to tracking data. Its 5.5% bond due in 2027 fell more than 8 cents to 35.75 cents.

– With the help of Subrat Patnaik.

(Updates with closing prices)

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