Shares of Carvana Co. (NYSE: CVNA) surged by double digits for the second time this week, driven by a credit rating upgrade from S&P Global. The upgrade applies to Carvana-sponsored securitizations, which are an integral part of the company’s business model. Carvana sells its auto loans to customers instead of retaining them, making loan securitization crucial to its operations.
Carvana stock surges 22.29% on Thursday.
S&P Global’s upgrade is significant because it indicates that Carvana is experiencing fewer losses than anticipated. This positive development reduces the risk of defaults in auto loans, which could have had severe consequences for Carvana. In response, S&P raised ratings on 21 classes from seven Carvana-sponsored securitizations backed by prime auto loans. The firm also revised its loss assumptions. Additionally, S&P increased ratings and lowered loss assumptions on debt associated with non-prime auto loans.
Carvana stock is attracting attention not only due to the rating upgrade but also because it is heavily shorted. The stock’s high trading volume suggests the possibility of a short squeeze, further driving its upward momentum.
The credit rating upgrade represents a significant milestone for Carvana, indicating a reduced risk of bankruptcy. The stock has rebounded from its rock-bottom lows at the end of 2022, showing signs of recovery.
Carvana’s management has been successful in cutting costs, leading to positive results in the first quarter. The company aims to achieve adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability in the second quarter.
While there is still progress to be made in establishing a healthy, profitable, and growing business, Carvana is moving in the right direction. These developments have been instrumental in propelling the stock to higher levels.