Monday, Needham maintained a Buy rating on CarMax (NYSE:KMX) but lowered the price target to $87.00 from the previous $91.00. The adjustment followed CarMax's first-quarter fiscal year 2025 results, which included comments from the company.
Needham's decision to lower the price target was influenced by CarMax's performance, which showed a miss on consensus retail unit estimates but met earnings per share (EPS) expectations due to better gross profit metrics and operational expense (OPEX) controls.
The analyst from Needham expressed a continued bullish stance on the used vehicle market, which is expected to benefit CarMax as the industry leader. Despite the company's shortfall in retail unit sales, CarMax's commentary was seen as encouraging during the latter part of the first quarter and into June. The analyst highlighted the potential for CarMax to regain retail unit growth and increase market share through its omni-channel investments and strategy.
Needham's revised price target of $87 is based on a 20 times multiple of their fiscal year 2026 EPS estimate for CarMax. This valuation multiple represents a discount relative to the firm's earnings growth forecast. The rationale behind this discount is attributed to the industry facing a trough period and CarMax encountering easier comparative periods ahead.
The report also acknowledged that bearish sentiment currently has the upper hand due to the company's failure to meet retail unit estimates. However, Needham sees the potential for improvement in the stock's sentiment if CarMax can demonstrate consistent retail unit growth and share gains.
In other recent news, CarMax has seen a flurry of activity with its earnings and revenue results, analyst upgrades, and other company developments. Truist Securities has raised its price target for CarMax to $70.00, acknowledging slight improvements in affordability and market share stability, despite challenges in sales trends. Concurrently, RBC Capital Markets has revised its outlook, raising its price target to $75.00 while maintaining an Outperform rating, indicating expectations for CarMax's earnings per share (EPS) to stabilize.
CarMax's Q1 Fiscal Year 2025 results showed mixed performance with total sales reaching $7.1 billion, marking a 7% decrease from the previous year. However, CarMax Auto Finance income saw a 7% year-over-year increase, and used-saleable inventory units grew by 5%. The company has also reported strategic initiatives aimed at fostering future growth, such as broadening vehicle sourcing capabilities, launching in new markets, and implementing cost-saving measures.
Additionally, CarMax repurchased over $100 million in shares and settled a $300 million debt, indicating active cost management. These are recent developments that investors should note. Analysts from various firms have echoed this sentiment, highlighting the company's focus on growth and improved profitability through these initiatives. However, it is important to note that total sales and unit sales have seen a decline, indicating a challenging market.
InvestingPro Insights
As CarMax (NYSE:KMX) navigates through a challenging period, the latest data from InvestingPro shows a mix of caution and potential for the leading used vehicle retailer. With a market capitalization of $11.2 billion and a price-to-earnings (P/E) ratio standing at 28.11, the company is trading at a premium compared to its earnings over the last twelve months as of Q1 2025. This valuation is underscored by a price-to-book ratio of 1.82, suggesting that the stock might be reasonably valued in terms of its assets.
InvestingPro Tips indicate that analysts have recently revised their earnings expectations downwards and anticipate a sales decline in the current year. This aligns with the revenue growth metrics, which have seen a contraction of 6.31% over the last twelve months as of Q1 2023. Nevertheless, CarMax remains a prominent player in the Specialty Retail industry and is expected to stay profitable this year. Moreover, the company's liquidity position appears robust, with liquid assets surpassing short-term obligations.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available, which provide a comprehensive view of CarMax's financial health and market position. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, granting access to exclusive insights that could inform investment decisions.
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