Las Vegas - Circa June 2019: CarMax Auto Dealership. CarMax is the largest used and pre-owned car retailer in the US III

CarMax Earnings to Rise to $1.63 a Share in Q1; Buy with Target Price $144

The United States’ largest used-car retailer CarMax is expected to report its fiscal first-quarter earnings of $1.63 per share, which represents year-over-year growth of over 600% from $0.23 per share seen in the same period a year ago.

The Richmond, Virginia-based used car giant would post year-over-year revenue growth of over 94% to $6.2 billion. In the last one year, on average, CarMax has beaten earnings 75% of the time and beaten revenue all the time.

CarMax shares surged over 26% so far this year. The stock was trading about 1% higher at $119.43 on Thursday.

Analyst Comments

“Store-expansion initiatives and high-quality product offerings are likely to boost CarMax’s prospects. The company’s omni-channel offerings to improve customer shopping experience are likely to bolster revenues. Increasing sales of used vehicles remain a bright spot for the firm. The acquisition of remaining shares of Edmunds, which is expected to be closed in June 2021, would further solidify CarMax’s position in the used auto ecosystem,” noted equity analysts at ZACKS Research.

“However, the auto parts retailer is likely to bear the brunt of rising selling, general & administrative (SG&A) expenses. The company projects capital spending to shoot up in fiscal 2022 amid advanced digital initiatives and store expansion efforts. High debt levels also play a spoilsport. As such, the stock warrants a cautious stance at the moment.”

CarMax Stock Price Forecast

Seven analysts who offered stock ratings for CarMax in the last three months forecast the average price in 12 months of $144.00 with a high forecast of $154.00 and a low forecast of $130.00.

The average price target represents 20.48% from the last price of $119.52. Of those seven analysts, five rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $165 with a high of $250 under a bull scenario and $63 under the worst-case scenario. The firm gave an “Overweight” rating on the used-car retailer’s stock.

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omni channel strategy, providing both online and physical dealer options to consumer,” noted Adam Jonas, equity analyst at Morgan Stanley.

KMX has consistently generated profitability and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omni-channel rollout.”

Several other analysts have also updated their stock outlook. Oppenheimer upped their price objective to $153 from $130 and gave the company an “outperform” rating. Royal Bank of Canada increased their target price to $148 from $140 and gave the stock an “outperform”. Wedbush reiterated a “neutral” rating and set a $130 target price.

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