On Friday, Needham, a financial advisory firm, increased its price target on CarMax (NYSE:KMX) shares to $98 from the previous $90, while maintaining a Buy rating on the stock. Currently trading at $84.23, CarMax, with its $12.96 billion market cap, has shown notable price momentum according to InvestingPro data. The adjustment follows CarMax's recent earnings report and subsequent company commentary.
CarMax, known for its large chain of used car dealerships, has exhibited a trend of retail unit improvements that have enhanced fixed cost leverage, despite a 3.03% revenue decline in the last twelve months.
The company maintains a healthy liquidity position with a current ratio of 2.25, though it operates with relatively thin gross margins of 11.96%. The demand for vehicles is modestly improving while supply remains tight, a situation that is expected to persist into 2025.
The analyst noted positive developments in December and anticipates a favorable comparison with the upcoming tax refund season. CarMax also reported a reduction in loan loss provisions during the quarter, which contributed to an increase in net income for CarMax Auto Finance (CAF), countering some of the more pessimistic market views.
The new price target of $98 is based on a 17.5 times multiple of the firm's projected fiscal year 2027 earnings per share (EPS). This valuation reflects a forward-looking approach, considering easier comparisons in the first quarter of 2026 and a robust growth outlook for unit sales.
According to InvestingPro's Fair Value analysis, the stock appears overvalued at current levels, trading at a P/E ratio of 27.75x. For deeper insights into CarMax's valuation and 10+ additional ProTips, explore the comprehensive Pro Research Report available on InvestingPro.
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