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CarMax has 'unfavourable' risk-reward, says JPMorgan

Published 2023/01/11, 21:17

By Sam Boughedda

CarMax (NYSE:KMX) was downgraded to Underweight from Neutral with a $60 price target by JPMorgan analysts on Wednesday.

They told investors in a research note that CarMax shares have an "unfavourable" risk-reward.

"We believe KMX is likely to be a long-term share gainer in the used car market and see investments over the last 3 years ultimately bearing fruits," they write. "However, the path to realizing this potential continues to get pushed out, making it difficult to discount the timing and magnitude of normalized margins."

The analysts went on to state that the firm is more concerned about the industry recovery potential, which they believe is unlikely to be V-shaped given the potential for an increasingly competitive sourcing environment for 1-4-year-old cars and negative equity risk.

"Due to this, we believe numbers are not only far from reset for FY24, but the trajectory to eventual normalization is also far from clear today and likely to underwhelm. We don't believe 'the final cut' or 'as bad as it gets' thesis is likely to play out as the cycle trajectory comes into view," added the analysts.

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