Morgan Stanley said the recent retreat in one auto retailer's stock after its earnings release creates a compelling purchase opportunity, arguing that the company's longer-term growth trajectory remains intact even as it contends with short-term cost pressures.
In a note, analyst Daniela Haigian highlighted that a softer fourth-quarter result will likely prompt downward revisions to retail GPU for the company, yet the bank continues to back the growth story while incorporating roughly one turn of multiple compression into its view.
The firm reported that management attributed a $220 per-unit drag in the quarter to elevated reconditioning costs, which the company linked to "less-productive production sites." Management described this as a set of "growing pains" it expects to work through over a three- to six-month period.
Morgan Stanley acknowledged investor concern about whether these reconditioning pressures are structural, and noted the company guided to a sequential improvement in retail GPU in the first quarter.
Haigian flagged rising confidence in the firm’s vertically integrated financing platform. She pointed to a steady 9.2 percent gain-on-sale spread and the addition of a $12 billion loan-purchase agreement as strengthening the platform's credibility amid market volatility.
The bank said such financing agreements provide insulation from potential future volatility in asset-backed securities markets.
On leverage, Morgan Stanley highlighted an improvement: net debt to adjusted EBITDA sits at about 1.2x, down from 2.8x in 2024.
Maintaining a $450 price target, the firm said the stock now implies about 45 percent upside and represents a favourable risk-reward profile. Haigian concluded that she would "leverage any near-term pull back in share price as an opportunity to add to a position in a generational compounder."
Contextual note - The bank's take combines near-term caution on unit-level profitability with continued conviction in financing strength and balance-sheet repair. The view embeds both an expectation of transient operational headwinds and support from financing arrangements and leverage reduction.