On Friday, RBC Capital Markets updated its outlook on CarMax (NYSE:KMX), raising the price target to $82.00 from $75.00 while keeping an Outperform rating on the stock. The firm recognized CarMax's mixed second-quarter results, noting a positive uptick in comparable retail units and consistent gross profit per unit (GPU), alongside effective cost management efforts that resulted in significant selling, general, and administrative (SG&A) leverage.
The report highlighted that CarMax experienced a 4.3% increase in comparable retail unit sales, with the momentum expected to continue into the third quarter. This performance was tempered by a roughly 14% year-over-year decline in income from CarMax Auto Finance (CAF) and apparent deterioration in credit metrics.
Despite these challenges, RBC Capital Markets adjusted its net sales growth estimates for fiscal years 2025 and 2026 to -2.9% and +3.3%, respectively, a slight change from the previous -3.8% and +3.1%. The earnings per share (EPS) estimates were also revised to $2.70 and $3.92 for the same periods.
The rationale behind the increased price target stems from the stabilization of unit trends and the anticipation of lower interest rates. This led to an upward adjustment in the valuation multiple to approximately 21 times, aligning with the company's five-year median plus one standard deviation. The revised price target reflects these updated assessments.
In other recent news, CarMax saw a 5% growth in retail used unit sales and a rise in retail profitability from $0.11 to $0.30 in the second quarter of fiscal year 2024. However, Evercore ISI expressed concerns over higher loan losses potentially leading to tighter credit conditions and profit challenges. The firm adjusted its earnings per share estimates for CarMax for fiscal years 2024 and 2025 to $3.05 and $3.60, respectively. On the other hand, CFRA analyst Garrett Nelson maintained a Buy rating on CarMax with a steady price target of $100. CarMax reported earnings for the August quarter at $0.85 per share, a 13% increase from the same period the previous year. The company's net sales were marginally down by 0.9% to $7.01 billion. In other recent developments, CarMax is testing new credit scoring models and plans to centralize logistics operations. These are all recent developments that investors should be aware of.
InvestingPro Insights
As CarMax (NYSE:KMX) navigates through its financial journey, the latest insights from InvestingPro paint a detailed picture of the company's current standing and future prospects. With a market capitalization of $11.63 billion, CarMax is trading at a P/E ratio of 30.54, which is a slight decrease from the adjusted P/E ratio for the last twelve months as of Q2 2025, standing at 29.24. This valuation comes in the context of a revenue decline of 3.03% over the same period, underlining the challenges faced by the company in generating top-line growth.
InvestingPro Tips highlight that analysts have revised their earnings expectations downwards for the upcoming period, which may suggest a cautious outlook on the company's profitability. Furthermore, CarMax's gross profit margins appear weak at 11.96%, indicating potential pressure on its operational efficiency. Despite these concerns, CarMax remains a prominent player in the Specialty Retail industry, with liquid assets that exceed its short-term obligations, signaling a solid financial position for handling near-term liabilities.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips on CarMax, providing deeper insight into the company's financial health and market position. As the company approaches its next earnings date on December 20, 2024, these insights can be particularly valuable for informed decision-making. The InvestingPro Fair Value estimate currently stands at $61.36, suggesting that the stock may be overvalued at its previous close price of $78.21.
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