Needham raises CarGurus stock target to $24 on strong lead gen business By

Needham raises CarGurus stock target to $24 on strong lead gen business By

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On Tuesday, Needham & Company adjusted its outlook on CarGurus Inc. (NASDAQ: NASDAQ:), increasing the stock price target to $24 from the previous $22 while maintaining a Buy rating on the stock. The revision follows CarGurus’ fourth-quarter earnings and management’s commentary, which highlighted the company’s robust dealer marketplace lead generation business.

The firm’s decision to raise the price target is backed by an acceleration in quarterly revenue per subscribing dealer (QARSD) and the expectation of weak comparative figures in the first half of 2024.

Although the trajectory of earnings growth beyond the high single-digit/low double-digit (HSD/LDD) growth currently implied in QARSD remains uncertain, CarGurus anticipates further optimization of its wholesale business over the next several quarters before shifting focus to growth.

The analyst noted that while the potential retail and wholesale synergies CarGurus could offer dealerships are compelling, they have adjusted their 2024 wholesale revenue estimates downward and deferred growth expectations to 2025 in their financial model after the earnings call. The new $24 price target is based on a 10-times multiple of the firm’s 2025 adjusted EBITDA estimate for CarGurus.

CarGurus, known for its online automotive marketplace, has been working on optimizing its wholesale operations, a process that is still underway according to the company’s latest earnings call.

The firm’s analysis suggests that although immediate growth in the wholesale segment may be limited, the long-term outlook remains positive, with synergies between retail and wholesale operations poised to benefit dealerships in the future.

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