- Needham analyst Chris Pierce reiterates a Hold rating on CarMax Inc KMX post 4Q FY23 results.
- Bullishly, KMX noted that they now only require low single-digit gross profit growth to drive SG&A leverage, lower than previous levels, as the pace of increase in omnichannel spending slows, with bears focusing on one-time items driving the EPS beat and continuing to voice concerns over KMX's finance business.
- The analyst expects his post-earnings estimates to remain ahead of consensus, given his bullish view on used vehicle velocity and that KMX retail GPUs will be stickier than historical levels as retail ASPs compress.
- However, even after accounting for better SG&A leverage, the analyst struggled to see an upside for the stock at a typical P/E on his FY25 EPS estimate.
- Wedbush analyst Seth Basham reiterates CarMax with a Neutral and a $55 price target.
- KMX reported 4Q results below consensus but better than buy-side expectations on the top line and topped expectations on the bottom line.
- Although the company is dealing with industry headwinds surrounding affordability (e.g., higher interest rates, tightening lending standards), it is also losing market share as it resists reducing prices as aggressively as competitors who aggressively cleared overvalued inventory from their lots. When coupled with favorable industry retail pricing dynamics and superior inventory management, KMX's price testing indicates that its strategy maximizes gross profit and leads to retail GPUs coming in much better than expected.
- The sequential improvement in Wholesale unit growth and strong GPU that benefited from favorable industry pricing dynamics drove better-than-expected Wholesale gross profit.
- All in all, the combination of these drivers led to a strong EPS beat.
- While near-term pressure persists, KMX believes that its market share losses have started to lessen since January, and it is poised for market share gains as the macro improves and used car prices do not fall precipitously.
- Although the longer-term picture looks brighter, the near-term outlook is more challenging.
- Price Action: KMX shares are trading lower by 4.71% at $68.81 on the last check Wednesday.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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