Analysts Positive Following CarMax Earnings Last Week

© Reuters.

By Sam Boughedda

CarMax (NYSE:KMX) reported first-quarter results Friday, topping revenue estimates but missing earnings expectations.

The company posted adjusted earnings of $1.56 per share, $0.02 below analyst estimates of $1.58. However, revenue for the quarter came in at $9.3 billion versus the consensus estimate of $9.12 billion.

Following the report, analysts at Wolfe Research, RBC Capital, and Evercore ISI commented on their view of the used vehicle retailer's quarter.

Wolfe Research analyst Greg Badishkanian said in his note that "CarMax reported a -13% unit comp for its May-end quarter (vs. -7% for its February quarter), which reflected ongoing macro pressures in the used vehicle market, including a "softer consumer" and vehicle affordability headwinds. However, the company gained share in the period and its comps improved sequentially to the negative low-single digit range by May. EPS beat consensus as gross profit per unit and CAF income were both stronger than expected." Badishkanian has an Outperform rating and a $110 price target on CarMax.

RBC Capital analyst Steven Shemesh, who has an Outperform rating on the stock, increased the firm's price target to $108 from $104.

Shemesh said: "KMX's results were largely in line with expectations. While inflationary pressures and the eventual replenishment of new car inventory will undoubtedly weigh on the used vehicle market, we believe KMX's recent investments behind digital capabilities position it well to continue gaining share. We adjust our FY'23/FY'24 comp estimates to -3.5%/+3% and our EPS estimates to $5.64/$6.52 (from $5.62/$6.47)."

Evercore ISI analyst Michael Montani maintained an In-Line rating and $95 price target on CarMax shares, telling investors it is "navigating the used care recession."

"CarMax isn't immune to a challenging used car backdrop evidenced by retail used unit comps -13% YoY, a 35% YoY decline in 1Q EBIT, and EPS down 40%. That said, CarMax is navigating an impossible 1Q21 stimulus compare with share gain, stronger front end margin, and enhanced sourcing capability that should drive enhanced earnings potential once cyclical headwinds ease," wrote Montani. “Long term we view CarMax enhanced multichannel offering as a profit & topline driver, yet with the challenging used car backdrop likely to linger the risk reward appears balanced at 16-18x P/E."