On Thursday, CFRA maintained a Hold rating on CarMax (NYSE:KMX) but reduced the price target to $70 from the previous $75. This adjustment follows CarMax’s reported earnings per share (EPS) for February, which fell short of expectations. The company posted an EPS of $0.32, a decrease from $0.44 in the prior year and below the consensus estimate of $0.45. This shortfall was attributed to lower-than-anticipated net sales and a contraction in gross margin.
Net sales dropped by 1.7% to $5.63 billion, which was $190 million less than the consensus. The decline was primarily due to a reduction in the average sales prices for used vehicles by 2.3% and for wholesale vehicles by 3.2%. Additionally, gross margin experienced a 30 basis point decrease to 10.4%, missing the consensus by the same margin.
CFRA’s revised price target is based on a forward price-to-earnings (P/E) ratio of 17.5x for the fiscal year ending in February 2026. This represents a discount compared to CarMax's five-year mean forward P/E of 21.4x. Furthermore, CFRA has lowered its EPS estimate for the fiscal year 2025 to $3.10 from $3.65 and has introduced an EPS forecast of $4.00 for fiscal year 2026.
The analyst highlighted that the persistent high interest rates are expected to continue impacting auto sales volume negatively. Additionally, inventory levels are seen as a pressure point on pricing.
The average loan rate for used vehicles in the U.S. reached 14.6% in February, according to data from Dealertrack and Cox Automotive. Given these factors, CFRA sees no compelling reason to purchase CarMax shares at present and anticipates that analysts' estimates will likely be revised downward, considering the stock's valuation to be fair at this juncture.
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