On Friday, Truist Securities adjusted its price target for CarMax (NYSE:KMX) shares, decreasing it to $72 from the previous $75, while keeping a Hold rating on the stock. The move reflects concerns over a challenging credit environment and potential impacts on sales.
The analyst from Truist Securities noted that CarMax's second quarter used unit comps were positive, showing a 4.3% increase compared to the expected 3.0%. This trend seems to continue into the third quarter, with expectations of another positive outcome. However, the recent deterioration in the credit market has led to a significant increase in loan loss provisions, including a $20-$30 million adjustment, which resulted in a substantial miss in CarMax's CarMax Auto Finance (CAF) segment.
The report further indicated that if loan losses continue to rise, there may be a tightening of credit, which could negatively affect sales. Despite the increase in sales, the analyst expressed concern over persistent industry challenges, such as affordability and credit issues, as well as competitive pressures from online platforms and other dealers.
The Hold rating remains in place for CarMax, with the revised price target of $72 taking into account the potential headwinds the company faces. The analyst concluded by reiterating the Hold position and updating the price target.
In other recent news, CarMax reported a 13% increase in earnings for the August quarter at $0.85 per share, while net sales slightly decreased by 0.9% to $7.01 billion. The company also saw a 5.1% increase in retail unit sales. Analysts have offered varying views on CarMax's performance.
Needham raised the price target to $90, citing strong second-quarter results. Meanwhile, Mizuho maintained a neutral stance with a consistent price target of $72 due to increasing credit pressures faced by the company. RBC Capital Markets raised its price target to $82, noting a 4.3% increase in comparable retail unit sales.
Evercore ISI increased its price target to $79, expressing concerns over higher loan losses potentially leading to tighter credit conditions. Lastly, CFRA analyst Garrett Nelson maintained a Buy rating with a steady price target of $100. In other developments, CarMax is testing new credit scoring models and plans to centralize logistics operations.
InvestingPro Insights
As CarMax (NYSE:KMX) navigates through a challenging credit environment and evolving market conditions, valuable insights from InvestingPro could provide investors with a clearer picture of the company's financial health and outlook. According to recent data, CarMax has a market capitalization of approximately $11.63 billion and is trading at a P/E ratio of 30.54, which, when adjusted for the last twelve months as of Q2 2025, slightly decreases to 29.24. This valuation comes amidst a revenue decline of 3.03% over the last twelve months, signaling a potential sales challenge as anticipated by analysts.
InvestingPro Tips highlight that CarMax is a prominent player in the Specialty Retail industry but is suffering from weak gross profit margins, which currently stand at 11.96%. Despite this, the company's liquid assets exceed its short-term obligations, providing some financial stability. Analysts have revised their earnings downwards for the upcoming period, reflecting concerns similar to those expressed by Truist Securities. CarMax does not pay a dividend to shareholders, which could influence investment decisions for income-focused investors.
For those considering a deeper analysis, InvestingPro offers a wealth of additional tips for CarMax, providing a comprehensive understanding of the company's financial position and future prospects. To explore further, visit https://www.investing.com/pro/KMX.
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