CarMax's Story Can Only Get 'Better From Here,' Analyst Says After Q4 Print

Heading into CarMax, Inc KMX's fourth-quarter earnings report Wednesday, investors were likely expecting weak same-store unit comps — which the company delivered, along with an EPS miss. In the view of Buckingham Research Group, the bullish narrative for the used car retailer remains unchanged. 

The Analyst

Buckingham's Glenn Chin maintains a Buy rating on CarMax's stock with a price target lowered from $77 to $75.

The Thesis

CarMax reported an EPS and revenue miss, while same-store unit comps fell 8 percent, Chin said in a Thursday note. But the company also reported best-in-sector margins and GPUs, and shares are still "inexpensive" at 14x — the lower end of its historical valuation range, the analyst said. 

CarMax's outlook can only get "better from here" for four reasons, Chin said:

• The company "dominates" the U.S. used car market, which comes with higher margins than new cars.
• CarMax's competitors will find it difficult to duplicate its success given its first-mover advantage and scale.
• Despite being a 20-year-old company, CarMax still has a long runway for growth, as its stores cover only 60 percent of the U.S. population.
• The stock is attractive after the recent pullback.

Buckingham's $75 price target implies a 16.8x multiple on fiscal 2019E EPS of $4.46. While a return to the high end of the stock's historic multiple of 20x-plus is "unlikely," a near-17x multiple is "easily justifiable" as fundamentals continue improving, Chin said. 

Price Action

Shares of CarMax were trading lower by 0.5 percent at the time of publication Thursday. 

Related Links:

Oppenheimer Upgrades CarMax, Says Used Car Sales, Tax Savings Support Bullish Move

Comparable Companies Analysis Suggests Now Could Be The Time To Sell CarMax

Photo courtesy of CarMax.