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Carvana stock jumps on Q2 profit expectations

Yahoo Finance Live discusses the surge in Carvana shares after its Q1 earnings report and breaks down the future outlook for company profits.

Video Transcript

SEANA SMITH: Kicking it off with Carvana as the top trending ticker on Yahoo Finance today. Shares are surging. You're looking at gains of just about 25%. We have been up about 40% in earlier trading. The struggling used car retailer's Q1 earnings beating the Street's expectations. Also predicted that it will reach adjusted profit in the second quarter, much earlier than expected. Carvana has been working to cut costs and restructure its business.

Remember shares plunged 98% last year. Rising interest rates really slowed down demand. So that gain that you're looking at right now of up 25%, we need to put that in perspective because Carvana trading just above $9 a share. Well, analysts weighing in on this report here, analysts at Piper Sandler and also Cowen both raising their price targets on the stock with the team at Piper Sandler rating Carvana as, quote, coming back from the brink.

So Akiko, a little encouraging. The company certainly though, has a ways to go.

AKIKO FUJITA: I mean, coming back from the brink is the key, right? They're not back yet. And to your point, it's important to highlight just how much that stock has declined, down more than 80% over the last 12 months. Yes, the results here with Carvana I think point to the fact that we have started to see used car sales kind of stabilize after seeing the declines. But at the end of the day, this company is really about having to cut down some of their debt.

You look at their total debt and leases rising to $8.7 billion within the quarter. You still have a rising rate environment. You've got customers who are still pinched when it comes to used cars.

- Right. Yeah.

AKIKO FUJITA: I'm not sure how bright the future is.

- Right. Yeah. And you make excellent points there. And Seana mentioned Piper Sandler. They also-- they did couch their expectations with regard to a-- they-- of course, they did boost their target, but they said, this stock isn't for the faint of heart, and you can see why. I mean, it's a massive surge today. Sure, but certainly, as you point to what occurred last year. So Carvana has made a lot of progress with regard to reducing inventory and cost cutting, et cetera.

But it's got a long way to go from where they were, say, during the pandemic. I mean, it was one of those that became a pandemic darling. But they are certainly trying to change that picture now.