Carvana Stock Heads for a New High. There’s More to the Story Than S&P 500 Inclusion.

BofA Securities reiterated a Buy rating on Carvana stock and hiked its price target to $455 from $385. (Mark Ralson/AFP via Getty Images)

Key Points

• It was announced Friday that Carvana would be joining the S&P 500 on Dec. 22.
• BofA Securities analyst Michael McGovern reiterates a Buy rating and lifts his price target on Carvana to $455 from $385.
• Carvana has gained nearly 117% this year, significantly outperforming the S&P 500’s 16% increase.

Carvana stock is set to close at a record high on Monday following confirmation that the stock would join the S&P 500 later this month.

The steep gains came on the heels of an announcement Friday that Carvana would join the benchmark index as part of its quarterly rebalancing. The changes will go into effect on Dec. 22.

BofA Securities identified Carvana’s potential inclusion in the index as its “top potential catalyst” for the shares as far back as June. Analyst Michael McGovern reiterated a Buy rating and lifted his price target to $455 from $385.

Shares surged 12.06% to $447.98, the largest same-day percentage increase since July 31, according to Dow Jones Market Data.

Carvana stock has run up sharply in recent weeks, which McGovern sees as a direct result of positive third-party data on unit volumes after the company’s fourth-quarter guidance sparked concerns over a possible slowdown.

Carvana reported 156,000 units in the third quarter but guided to just 150,000 in the fourth quarter, while Wall Street is now eyeing 155,000 units, McGovern noted. He expects consumer demand to remain stable, in part fueled by share gains against CarMax , Carvana’s next-closest rival in the used-car market.

Wall Street has evidently soured on CarMax, as shares have slumped 52% this year. McGovern, for one, expects Carvana to surpass CarMax in quarterly units sold “at some point in 2026.”

Counting Monday’s gains, shares have surged 123% this year, outstripping a 16% gain for the S&P 500. CarMax, by comparison, has slumped 52%.

It’s easy to be suspicious of the gains, considering Carvana was in the news earlier this year after famed short-seller Hindenburg Research dubbed it “a father-son accounting grift for the ages.” The firm’s allegations of accounting manipulation and lax underwriting caused shares to fall sharply over two trading sessions.

However, Carvana swiftly rejected the allegations, and many on Wall Street scrambled to defend the company. Even in the face of heightened scrutiny, Carvana continually has posted strong quarterly results, fueling further stock gains.

The higher price target reflects discounted cash flow, McGovern said on Monday. Although cyclicality remains a risk to Carvana’s expected level of growth, the current trajectory of share gains versus a flat industry underscores its “idiosyncratic” potential.

He noted that Carvana “is also seeing tailwinds in its capital structure and potential for lower cost of capital, with recent credit rating upgrades and now S&P inclusion.”

S&P Global raised its rating on Carvana’s senior secured debt to BB- from B in August with a 3 recovery rating, signaling an expected “meaningful” recovery for debt holders if the company were to default.

The agency also raised its rating on Carvana’s senior unsecured debt to B from CCC+ with a 6 recovery rating, denoting an expectation of negligible recovery in the event of default, ranging from 0% to 10%.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com