Tuesday, Mizuho initiated coverage on CarMax (NYSE:KMX) with a Neutral rating and a price target (PT) of $80.00. The firm highlighted that the average used vehicle selling prices have surged by 30% above the typical rate, which, when combined with rising interest rates, is making cars less affordable for many consumers.
Mizuho's forecast for CarMax's fiscal year 2024 used unit comp is set at an increase of 3.2%, which is slightly more conservative than the current consensus of a 4.3% rise. The firm pointed to the challenges in vehicle affordability as a key factor for CarMax, a company whose business model is heavily reliant on sales volume.
Despite the current economic pressures, Mizuho acknowledged CarMax's potential in the long term, citing the company's digital enhancements as a significant factor that could help it gain more market share in a fragmented industry and utilize a leaner expense base more effectively.
The firm also mentioned that it might adopt a more favorable view of CarMax's stock once there are clearer signs of a balance between supply and demand in the market. Until then, the Neutral rating reflects a cautious outlook on the company's near-term performance amidst a challenging economic environment for the used car sector.
InvestingPro Insights
As Mizuho weighs in on CarMax's future with a Neutral stance, the InvestingPro platform sheds additional light on the company's financial health and market performance. CarMax, known for its prominent position in the Specialty Retail industry, is navigating through an economic landscape marked by a significant debt burden and weak gross profit margins, as reflected in a Gross Profit Margin of 11.62% over the last twelve months as of Q3 2024.
InvestingPro data indicates a Market Cap of $12.61 billion, with a P/E Ratio of 25.45. The company's stock price movements have been quite volatile, with a 1 Year Price Total Return of 41.89%. This volatility is coupled with analysts' anticipation of a sales decline in the current year, underlining a Revenue Growth of -14.53% over the same period.
InvestingPro Tips suggest that while CarMax operates with a heavy debt load, its liquid assets surpass short-term obligations, which may offer some financial flexibility. Moreover, despite analysts predicting a decline in sales, they remain optimistic about the company's profitability this year, as CarMax has been profitable over the last twelve months.
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