An anticipated surge in defaults on auto loans could spell trouble for CarMax, a leading online car dealer. Despite having an Outperform rating on CarMax stock (KMX), Wedbush analyst Seth Basham has revised his price target from $90 to $80. This adjustment comes on the heels of an analysis of CarMax Auto Finance’s latest auto-loan data.
According to Basham, the delinquency rate at the portfolio level experienced a significant spike in October. The vintage securitization delinquency and loss curves are showing worrisome patterns, coupled with a potential slowdown in the job market. These factors may lead to higher loan loss provisions in F3Q.
In response to the report, CarMax stock saw a decline of 4.1% to $65.12 during midday trading. The company has yet to offer an official comment on the matter.
The data provided by the analyst indicates that the percentage of loans delinquent by 31 days or more rose by 0.59 percentage points in October, reaching 4.75% – the highest figure recorded this year. Typically, this time of the year sees a decline of 6 basis points.
Affordability poses a concern in this context. An Edmunds report reveals that 17.5% of car buyers who financed their purchases in the third quarter had monthly loan payments exceeding $1,000. Furthermore, the average monthly payment reached a record high of $736.
Despite these troubling loan statistics, Basham maintains a positive long-term outlook on CarMax.
“While the macro and its finance business may present short-term challenges, CarMax, as an early-cycle company, is well-positioned to emerge successfully from this downturn,” he expressed.
Over the past year, CarMax shares have seen a decline of approximately 5%, in contrast to the 13% increase in the S&P 500.