Morgan Stanley Cuts Carvana Price Target to $90 After Weak Guidance

What happened

Morgan Stanley reduced its price target on Carvana to $90 from $102, maintaining an Overweight rating. The downgrade came after Carvana issued full-year 2026 adjusted EBITDA guidance of $2.70 billion to $3.00 billion, with a midpoint below the roughly $3 billion consensus. Wells Fargo also trimmed its target to $80 from $85. Both firms characterized the near-term EBITDA pressure as temporary rather than structural. Shares fell 11% in a single session, marking the worst day since late January, and are now down 30% year-to-date in 2026.

Why the stock moved

The stock dropped following guidance that underwhelmed investors despite strong operational performance. Carvana posted record second-quarter revenue of $7.376 billion, up 52.4% year over year, and adjusted earnings per share of $0.42 versus $0.38 expected. Retail units reached a record 197,325, up 38%, and adjusted EBITDA margin hit 10.4%. However, management offered only a vague 'sequential increase' in units for Q3 with no specific figures, prompting investors to reassess how much growth was already priced in. The cautious tone suggested management sees headwinds ahead, even as CEO Ernie Garcia noted Carvana still represents just 1.5% of the U.S. automotive market.

Bigger picture

Carvana's performance split with peer CarMax highlights a shift in investor sentiment within the used-car retail sector. While Carvana stock is down 30% year-to-date, CarMax is up 51% as the incumbent finally gains turnaround credit. CarMax now trades above its own analyst consensus price target and carries a higher P/E of 36x compared to Carvana's 31x, despite slower growth. Insider activity also signals diverging confidence: Carvana insiders net-sold across 67 recent transactions, while CarMax insiders net-bought across 18. This suggests the market is rewarding stability and clearer visibility over high-growth momentum stories with uncertain near-term outlooks.

What investors watch

Investors will monitor whether Carvana can deliver on its full-year EBITDA guidance and whether Q3 unit growth shows meaningful sequential improvement. The company's expansion of same-day delivery to the Fort Myers area indicates continued investment in logistics and customer experience, factors that could support long-term market share gains. Analysts will also look for signs that near-term margin pressure is indeed temporary, as Morgan Stanley and Wells Fargo suggest, rather than a structural issue tied to competition or operational scaling. Any updates on penetration beyond the current 1.5% market share and insider transaction trends will provide additional signals on management confidence.