Inventory Stabilizes, But Cars.com Lags Peers: Analyst Flags Profit Pressures

JP Morgan analyst Rajat Gupta cut the price forecast on Cars.com Inc. (NYSE:CARS) from $21.00 to $17.00 while reiterating a Neutral rating.

On Thursday, the company reported fourth-quarter adjusted EPS of $0.49, falling short of the $0.56 estimate, while revenue came in at $180.43 million, missing the street view of $183.90 million.

The company sees first-quarter revenue of $178 million and $181 million vs. consensus of $184.955 million and full-year revenue of $745 million to $755 million vs street view of $756.399 million.

The analyst writes that a significant fourth-quarter miss versus prior guidance was largely due to reduced dealer spending as inventory levels stabilized.

Meanwhile, management’s stance on profit compression as a key factor seems unclear, given that franchised dealer new GPUs (according to JDP) declined by only ~$100 sequentially, which is a much slower drop than in previous quarters, adds the analyst.

The analyst says that industry dealer inventory levels at the end of December 2024 were down ~5% compared to September 2024 levels.

Accu-Trade adoption increased to ~1,000 dealers from 950 in the third quarter, while OEM and National revenue grew 15% year-over-year, adds the analyst.

Overall, Gupta says that the results reflect weak performance, with growth remaining sluggish and significantly below its peers.

Investors are focused on a potential second-half inflection to regain confidence in management’s execution, adds the analyst.

Consequently, the analyst revised the EBITDA estimates, lowering first-quarter 2025 to $47 million (from $53 million) and 2025/2026 EBITDA to $215 million/$235 million (from $225 million/$245 million).

Price Action: CARS shares are up 6.32% at $12.79 at the last check Friday.

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