Morgan Stanley delivers bold Carvana stock verdict

Carvana (CVNA) has struggled to impress investors in 2026 despite posting its strongest quarter ever this summer. The stock trades near $74, down about 7% for the year. Morgan Stanley, a major Wall Street firm, is trying to explain the disconnect between Carvana's healthy business and stagnant share price. The firm has maintained an Overweight rating on Carvana with a 12-month price target of $90, implying roughly 25% gains from current levels.

Daniela Haigian, an analyst covering auto retail for Morgan Stanley, highlighted three key factors driving her confidence in Carvana: durable sales growth, undervalued free cash flow, and cost savings that lift profit per car over time. The firm's research note also stated that recent reconditioning and financing pressures should fade, rather than persist.

Carvana's Q2 retail units grew 38%, surpassing Morgan Stanley's 34% estimate and Wall Street's 33% consensus. The company's gross profit per unit fell nearly 6% in the second quarter, but Morgan Stanley expects this number to remain volatile due to fluctuating financing margins and benchmark rates. The firm believes scale and market-share gains from Carvana's national operation can eventually outweigh flat profit per car.

Morgan Stanley estimates Carvana can trim more than $900 in SG&A expenses per retail unit between 2025 and 2030, thanks to heavy buildout projects at its ADESA auction sites. The company is also expanding through the acquisition of physical new-car dealerships, with its seventh such deal, purchasing seven Stellantis dealerships for $200 million. Morgan Stanley even suggests a potential long-term scenario where Carvana could manage fleets of self-driving vehicles using its software and logistics network.

Before the company releases its Q4 earnings, analysts will closely monitor whether gross profit per unit holds steady, as this number is driving the stock's swings. Factors supporting the bullish case include retail unit growth tracking in the high 30% range, capital spending under 1% of sales, and record web traffic. However, potential headwinds include a weaker job market, tighter lending, and flat profit per car, which could limit the cushion for future growth.