CarGurus downgraded to underweight as Piper Sandler cuts estimates By

© Reuters. CarGurus (CARG) downgraded to Underweight as Piper Sandler cuts estimates

By Michael Elkins

Piper Sandler downgraded CarGurus (NASDAQ:) to Underweight (from Neutral) with a price target of $12.00. Piper slashed estimates to reflect fewer units sold through its “Maximum Instant Cash Offer” as well as lower industry-wide used car sales. The analysts wrote in a note that they also think there is an enforcement risk because CARG works to address CarOffer’s recent operational glitches.

When they acquired CarOffer, CarGurus caused a major organizational change within the company. So far, results have been mixed.

“While its wholesale business provides additional growth leverage, the company has struggled to translate incremental revenue into EBITDA,” the analysts wrote. Management can certainly deal with operational issues related to vehicle arbitration – and the recently announced acquisition should boost investor confidence in times of macro uncertainty – but at this point, driving our estimates will require a “leap of confidence”. Instead of increasing our estimates, we are cutting our estimates for wholesale transactions – due to lower market-wide used car sales. We are also lowering our margin expectations for CarOffer more broadly.”

Bullish risks to the stock include the success of auto dealers, faltering competition, a better-than-expected macroeconomic backdrop and higher margins at CarOffer.

Shares of CARG fell 1.79% in afternoon trading Thursday.

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