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

(Bloomberg) — Shares of Carvana Co. fell to their lowest level in more than five years after a Morgan Stanley analyst downgraded the auto retailer and said its shares could be worth as little as $1.

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A deteriorating used car market and a volatile interest rate and financing environment “add substantial risk to the outlook,” Morgan Stanley’s Adam Jonas said in a note on Friday after Carvana reported quarterly results that missed estimates. He withdrew his price target from $68 and said his new base case is that the company could be worth $1 to $40 per share.

Carvana fell 39% to $8.76 in New York trading, its lowest close since May 2017. Jonas had a $430 price target on the stock in early March and rated it the equivalent of a buy in early May.

Rising borrowing costs and falling used car prices are hitting auto retailers that thrived just months ago when they could offer cheap loans to consumers and profit from record vehicle values ​​at auctions. Chief Executive Ernie Garcia said Thursday that Carvana is bracing for weaker industry demand and higher depreciation levels.

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

Carvana shares were trading above $370 in August of last year. The stock’s plunge has burned big-name investors, including Tiger Global Management, which cut its stake in the second quarter, and Baillie Gifford & Co.

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

–With help from Subrat Patnaik.

(Updates with closing prices)

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