Carvana (NYSE:CVNA) shares rose more than 4% on Wednesday after it was upgraded to Buy from Hold at Needham with a new price target of $160 per share, signaling expectations of profitable growth for the company.

Needham highlighted Carvana's potential to increase unit sales and market share by utilizing its digital-first customer experience alongside its under-utilized physical footprint.

The firm predicts that Carvana, after a period of volatility, is poised to become a profitable growth story. This is attributed to rising retail unit sales and enhanced gross profit per unit, benefiting from its high-fixed-cost base.

Needham believes the current consensus on retail unit estimates has bottomed out and does not yet reflect the anticipated recovery. They see potential upside from management's focus on unit growth, optimizations at acquired Carvana IRCs and Adesa locations, and the advantages of a more stable balance sheet.