Carvana Co. (NYSE: CVNA) shares climbed 7.1% in midday trading Thursday, defying a Bank of America downgrade as market chatter about a potential stock split fueled investor optimism. The Phoenix-based online used car dealer’s rebound comes after a 92% year-to-date surge, with its market capitalization now exceeding $15 billion.
Bank of America analysts moved Carvana from ‘Neutral’ to ‘Underperform,’ citing valuation concerns after the stock’s meteoric rise. ‘We see limited upside at current levels given cyclical pressures in used vehicle pricing,’ the note stated, maintaining a $45 price target that implies 30% downside from current levels.
Market sources suggest the rally stems from growing speculation about a stock split announcement when Carvana reports earnings next month. The company last split its stock 5-for-1 in 2020 when shares traded near $200. ‘Retail investors are betting history repeats with another split to improve liquidity,’ said one trader at a major brokerage who asked not to be named.
Carvana’s recovery marks a dramatic turnaround from its 2022 crisis when soaring interest rates and used car price declines nearly pushed the company into bankruptcy. Through debt restructuring and cost cuts, management has returned to profitability, posting $150 million in net income last quarter.
Analysts remain divided on whether the rally can sustain. Bulls point to Carvana’s 15% market share growth in key regions and improved unit economics. Bears warn used vehicle supply gluts and potential recessionary pressures could derail the comeback story. The stock’s 150% short interest suggests many still doubt the company’s long-term viability.