Equities

JPMorgan Lifts Carvana to $150, AMD Cut to $176 by Morgan Stanley

JPMorgan names Carvana top pick with a $150 target, while Morgan Stanley downgrades AMD to equal weight.

By Alex P. Chase

6/10, 06:04 EDT
Advanced Micro Devices, Inc.
Burlington Stores, Inc.
Carvana Co.
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Key Takeaway

  • JPMorgan names Carvana (CVNA) a top pick, raising the price target to $150, citing superior execution and strong unit economics.
  • Morgan Stanley downgrades AMD (AMD) to equal weight with a $176 price target, noting overly optimistic AI business expectations.
  • Jefferies reaffirms buy rating for Burlington Stores (BURL), increasing the price target to $275 due to robust sales growth and inventory management.

Carvana Named Top Pick

JPMorgan has identified Carvana as a standout performer in the used car retail sector, despite broader industry challenges. Analyst Rajat Gupta has maintained an overweight rating on Carvana, elevating the price target to $150, which suggests a potential upside of 40.8% from the previous close. Carvana's shares have already surged over 101% this year.

Gupta highlighted Carvana's "superior execution" in sourcing and recognizing a broader and cheaper mix of vehicles, which has led to strong conversion rates and low inventory levels. "We believe CVNA’s recent de-coupling from industry trends on unit growth, coupled with strong execution on margins, makes them best positioned in this backdrop to drive relative upward revisions," Gupta stated. He also noted that Carvana's strong unit economics, the highest in the industry, provide significant flexibility to add slack to operations, driving accelerated growth and demonstrating leverage on fixed costs.

The broader used car industry faces cyclical and structural supply constraints, which are expected to limit any significant increase in unit sales over the next 12 to 18 months. However, Carvana's unique positioning and execution capabilities make it a top pick in the retail ecosystem, according to JPMorgan.

AMD Downgraded by Morgan Stanley

Morgan Stanley has downgraded Advanced Micro Devices (AMD) from overweight to equal weight, citing overly optimistic investor expectations for the company's AI business. Analyst Joseph Moore maintained a price target of $176, indicating a modest upside of 4.8%. Following the downgrade, AMD shares fell more than 2%, although the stock has gained nearly 14% year to date.

"We like the AMD story, but investor expectations for the AI business still seem too high to us. We see limited upward revision potential for AI from here," Moore wrote. He also pointed out that valuations for competitors Nvidia and Broadcom are more attractive. Moore had previously been optimistic about AMD's core business reaccelerating after a severe downturn in all markets, with AI contributing to further multiple expansion. However, he noted that AI has shifted from a secondary driver to the primary one, which has led to elevated expectations.

Burlington Stores' Positive Outlook

Burlington Stores has garnered attention from Jefferies analyst Corey Tarlowe, who reaffirmed a buy rating and increased the price target to $275 from $260. The off-price retailer impressed investors with its first-quarter results for fiscal 2024, which ended on May 4, and raised its profit margin and earnings outlook for the full year.

Tarlowe emphasized Burlington's ability to deliver robust comparable sales growth and highlighted the company's well-managed inventory levels. "BURL is the smallest and least-profitable of the major off-price retailers, and we believe that it has a significant top-line and margin runway ahead that is not yet fully factored into estimates," Tarlowe said. He expects Burlington to benefit from customers migrating from department stores to off-price retailers, a trend accelerated by the COVID-19 pandemic. The company operated 1,021 stores at the end of Q1 fiscal 2024 and plans to open about 100 new stores this year, with a long-term goal of expanding to 2,000 stores.

Street Views

  • Rajat Gupta, JPMorgan (Bullish on Carvana):

    "We believe CVNA’s recent de-coupling from industry trends on unit growth, coupled with strong execution on margins, makes them best positioned in this backdrop to drive relative upward revisions... In addition, with a strong starting point on unit economics, the highest in the industry, CVNA has significant wiggle room to add some slack to its operations down the line to drive accelerated growth and demonstrate leverage on fixed costs."

  • Joseph Moore, Morgan Stanley (Neutral on Advanced Micro Devices):

    "We like the AMD story, but investor expectations for the AI business still seem too high to us. We see limited upward revision potential for AI from here... We have been OW AMD on the thesis that the core business is set to reaccelerate following a severe downturn in all markets, with AI contributing to further multiple expansion. We still believe in that thesis, but AI has moved from a secondary driver to the primary one."