Mizuho has reiterated its Neutral rating on CarMax (NYSE: NYSE:KMX) with a steady price target of $72.00.
The firm's stance comes after an assessment of recent used vehicle pricing trends, which may continue to impact CarMax's operations.
According to the latest data from Manheim, the rate of decline in used car prices has slowed in the past two months, with a roughly 4% year-on-year decrease in August compared to double-digit drops earlier in 2024. When compared to 2019, used vehicle values are currently 32% higher and have shown an upward trend compared to previous months.
CarMax's business model, which relies on increasing used vehicle sales volumes while maintaining or slightly increasing gross profit per unit, could face challenges if the depreciation of used cars continues to decelerate. The situation has the potential to affect unit sales volumes and hinder improvements in other areas of the company's profit and loss statement.
The firm notes that a more gradual pace of used car price depreciation could sustain pressure on CarMax's unit volumes for an extended period. This could, in turn, restrict the company's operational progress.
CarMax has experienced significant developments. The company's shares were upgraded from Hold to Buy by CFRA, reflecting an optimistic view of the auto dealership environment. The fiscal year 2026 earnings per share (EPS) forecast was also raised to $4.10 from $3.75. Notably, CarMax's Q1 Fiscal Year 2025 results showcased a 7% decrease in total sales, falling to $7.1 billion, but CarMax Auto Finance income rose by 7% year-over-year.
In addition, CarMax held its 2024 Annual Meeting of Shareholders, electing ten directors to the Board and ratifying KPMG LLP as the independent registered public accounting firm for fiscal year 2025. Analyst firms, including Needham, Truist Securities, and RBC Capital Markets, have updated their outlook on CarMax. Needham maintained a Buy rating but lowered the price target to $87, while Truist Securities raised its price target to $70, and RBC Capital Markets increased its target to $75.
InvestingPro Insights
As CarMax (NYSE:KMX) navigates a changing used vehicle market landscape, real-time data from InvestingPro provides a deeper look into the company's financial health and market performance. With a market capitalization of $12.58 billion and a P/E ratio standing at 31.71, CarMax is trading at a high earnings multiple, which suggests that the stock might be priced optimistically in relation to its earnings. This aligns with one of the InvestingPro Tips indicating that CarMax is trading at a high EBITDA valuation multiple. The company's revenue for the last twelve months as of Q1 2025 stands at $27.69 billion, demonstrating a decline of 6.31%, which supports the tip that analysts anticipate a sales decline in the current year.
On the profitability front, CarMax has been profitable over the last twelve months, with a basic and diluted EPS (Continuing Operations) of $2.55. Despite the challenges in the used vehicle market, CarMax has shown a strong return over the last three months, with a price total return of 17.76%. This could indicate resilience and the potential for recovery in its share price. Additionally, the company's liquid assets exceed its short-term obligations, which may provide some financial stability amidst market fluctuations.
For investors looking for a comprehensive analysis, there are additional InvestingPro Tips available that delve into CarMax's industry position, stock price volatility, and other key financial metrics. These insights can be found at https://www.investing.com/pro/KMX, providing investors with a more detailed perspective on CarMax's current standing and future prospects.
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