On Friday, Evercore ISI made adjustments to its outlook on CarMax (NYSE:KMX), reducing its price target to $74 from the previous $85, while maintaining an In Line rating for the automotive retailer's shares.
The firm's analysis suggests that CarMax is poised to continue its focus on profitable market share growth over the long term. The company's strategy includes the development of higher growth and higher margin ancillary businesses.
The report from Evercore ISI indicates CarMax is facing challenges such as rapid depreciation, a relative scarcity of off-lease vehicle supply, and consumers who are highly sensitive to price.
These factors contribute to the expectation that CarMax's comparable sales may fall behind those of its franchised peers for the time being. The firm predicts that while CarMax is unlikely to compromise on its gross profit per unit (GPU) or relax its lending standards, this may result in share pressure that could persist for the next couple of quarters.
Evercore ISI has revised its earnings per share (EPS) estimates for CarMax for the calendar years 2024 and 2025, reducing them by approximately 10%. The new base case price target reflects an 18.5 times multiple of the projected $4 EPS in 2025.
The analysis suggests a support range for CarMax's stock price between $65 and $70, correlating to a 16-17 times multiple of around $4 EPS. This range accounts for varying perspectives, with optimists looking for a potential recovery to $5 to $6 of EPS and pessimists considering a lower estimate of $3.15 EPS for 2025.
In conclusion, Evercore ISI recognizes the inherent value in the CarMax brand but advises that a turnaround in the company's share performance may require investor patience. This comes as Carvana (CVNA) continues to increase its presence in the market.
InvestingPro Insights
The latest data from InvestingPro provides a nuanced view of CarMax's financial positioning. With a market capitalization of approximately $11.34 billion and a trailing twelve-month P/E ratio hovering around 26.26, investors are valuing the company's earnings at a premium relative to some industry peers. Notably, CarMax's revenue has seen a decline of 14.53% over the last twelve months as of Q3 2023, which aligns with Evercore ISI's concerns regarding potential sales challenges.
InvestingPro Tips highlight that CarMax operates with a significant debt burden and analysts have recently revised their earnings downwards for the upcoming period, suggesting caution may be warranted. Despite this, CarMax remains a prominent player in the Specialty Retail industry, and its stock price has shown resilience with a strong return over the last three months, indicating some investor optimism.
For those seeking a deeper dive into CarMax's financials and future outlook, InvestingPro offers additional insights. There are 12 more InvestingPro Tips available, which can help investors make more informed decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription for access to these valuable tips and more.
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