Carvana (CVNA) shares rallied Monday after Wedbush decided the recent selloff had gone too far, upgrading the online used car retailer and setting a new Street-high price target of $400.

What's Driving the Upgrade

Wedbush analyst Scott Devitt lifted his rating to Outperform from Neutral, bumping the price target from $380 to $400. The catalyst? A 13% decline in shares that Devitt thinks doesn't reflect how well management has actually been executing.

Here's the thing: Carvana's stock is now trading near the bottom of its historical valuation range over the past two years, hovering around 22 times projected 2027 earnings. That looks cheap to Wedbush, especially given what's happening operationally.

Beating CarMax Ahead of Schedule

The most interesting development is that Carvana is now expected to overtake CarMax (KMX) in quarterly used unit volumes six months earlier than previously thought. According to Street estimates cited by Devitt, Carvana will deliver roughly 187,000 used vehicles in Q4 2026, compared to about 170,000 for CarMax. That's a pretty significant momentum shift.

Looking further out, Wedbush's base case has Carvana hitting three million annual retail unit sales by 2033, which would represent a compound annual growth rate of at least 23% through that year.

Margin Expansion and Credit Concerns

Carvana has been steadily improving its margins year-over-year, thanks to better gross profit per unit and tighter expense management. Wedbush expects adjusted EBITDA margins to climb toward 12% by 2027, putting the company on a clear path to management's longer-term target of 13.5% over the next five to ten years.

What about credit risk? Despite Carvana's expansion into lower-prime and subprime financing, Wedbush doesn't see much reason to worry about credit performance. The firm acknowledges that some investor anxiety has been tied to broader market jitters and weakness from peer CarMax, but doesn't think those concerns are justified for Carvana specifically.

Near-Term Numbers

For the fourth quarter, Wedbush now expects revenue of $5.2 billion with adjusted EBITDA of $535 million, translating to a 10.3% margin. That revenue figure would be up 46.4% year-over-year. For the full year, the firm is projecting $19.9 billion in revenue, a 45.6% jump from last year, powered by a 41.4% surge in used unit sales.

"Management has delivered robust growth for several quarters, and in the near-term, we see upside to current estimates," Devitt said.

Price Action: Carvana shares were up 5.91% at $328.20 at the time of publication on Monday.