Bank of America downgrades Carvana. Why the stock's recent dip isn't a buying opportunity

Returns for Carvana are likely to moderate following the used-car stock’s dizzying rallies in recent years, largely due to a combination of macroeconomic headwinds, according to Bank of America. The bank downgraded Carvana to neutral from buy, and lowered the stock’s price target to $360 from $400, which still implies nearly 15% upside from Thursday’s close. “Recent macro & industry developments make the near-term risk/reward look more balanced,” Bank of America analyst Michael McGovern said Monday in a note to clients. “With the recent oil shock potentially pressuring an already stretched lower & middle income consumer, and 2-year rates moving the opposite direction, we think the risk/reward profile is more balanced now than heading into 2026, despite management’s strong execution & still-elevated growth.” Carvana’s shares nearly quadrupled in 2024 as the used-car firm posted improved quarterly profits, boosted by a series of cost-saving measures. Although that growth continued into much of last year, Carvana shares have plunged 26% in 2026 as fallout from Iran war threatens to hit consumers’ wallets, according to McGovern. The analyst noted that discretionary spending could decline due to worsening macroeconomic conditions amid the Iran war, hurting Carvana and its competitors’ bottom lines. CVNA YTD mountain Carvana stock year to date Following the U.S.’ initial spate of military strikes on Iran in late February, gas prices in the U.S. have spiked more than 30%. “Higher gas prices could add some risk to discretionary spend in [the] autos category, especially for younger demos,” McGovern wrote. “To illustrate, Gen Z spending on gas represents nearly 10% of overall Gen Z discretionary spend, nearly double the share of older cohorts.” As consumers seem to tighten their purse strings, Carvana is aiming to capture a larger share of the used-automobile market by adopting more competitive lending rates. However, those efforts could be undermined by a recent increase in 2-year yields that threatens to compress excess spreads, according to Bank of America. “Despite strong Tax refund payouts, we are slightly less optimistic on accelerating Y/Y% unit growth near-term,” McGovern wrote. Separately, Carvana is already facing more competition on car loans, threatening its gross profit per unit. Late last year, CarMax signaled it would lower its retail used unit margins to gain ground over its rivals. Bank of America’s call goes against consensus on Wall Street. Of the 26 analysts covering Carvana, just 7 have a hold on shares, per LSEG. The stock has plunged nearly 26% in 2026, marking a reversal from its rallies over the past few years. However, the stock is still up 93% over the past 12 months.