CarMax Stock Falls After JPMorgan Downgrade to Neutral, Analyst Says Shares Close to Peaking

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CarMax Stock Falls After JPMorgan Downgrade to Neutral, Analyst Says Shares Close to Peaking
Credit: © Reuters.

JPMorgan analyst Rajat Gupta downgraded CarMax (NYSE: KMX ) to Neutral from Overweight as he believes that the Street consensus is way too high.

The analyst argues that FY23 estimates need to be reset materially, hence his revised estimates now sit at a Street-low ($5.25).

Moreover, “building conviction on an inflection in growth next year is challenging amidst the worsening affordability backdrop, suggesting the stock is likely close to a near-term peak at current levels (~16x FY2 EPS of $6.25) with potential downside to $75 (~14x NTM EPS of $5.25) in the near-term,” Gupta said in a client note.

For these reasons, Gupta finds it hard to “recommend this trade anymore given the material cut needed to near-term estimates in a likely worsening affordability backdrop before it gets better.”

The analyst is more positive on KMX in case a mild near-term recession occurs due to the company’s better BS leverage and FCF support.

A new price target is $110.00 per share, down from $135.00.

By Senad Karaahmetovic

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