CarMax On The Fast Track, Analyst Upgrades Stock Citing Recovery Signs

Needham analyst Chris Pierce upgraded the shares of CarMax Inc KMX from Hold to Buy and announced a price target of $99.

The analyst is confident in a recovery growing in the face of early positive data and easy comps into the tax refund season, seasonally the best time of year for used vehicle sales.

Share growth would reverse losses that were driven by factors that are already moderating and not set to repeat, said the analyst.

Unit growth is the key KPI in the model, with KMX set to lever prior omni-channel investments to drive earnings growth, opined the analyst.

KMX has pushed consumer rates higher by about 200bps y/y, and its net interest margin has widened as rates demanded by ABS investors eased on expectations of lower rates.

The analyst sees potential for a multi-year recovery, with interest rate relief and rising used vehicle supply pushing down ASPs and monthly payments.

KMX is absorbing the higher advertising and technology expenses associated with adopting an omni-channel operating model that suits the used vehicle retail market’s shift from offline to online, said the analyst.

In the absence of clarity with regard to the cost of the transition, and in the face of further stepped up competition, the analyst sees a high bar for earnings upside versus consensus.

Price Action: KMX shares are trading higher by 1.07% at $81.71 on the last check Wednesday.

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