Analyst Seth Basham Raises Price Target
Wedbush analyst Seth Basham has upgraded his rating on CarMax’s stock to Outperform, with a revised price target of $90. This comes ahead of the company’s fiscal 2024 second-quarter earnings results. CarMax’s stock (ticker: KMX) was trading nearly 2% higher at $78.07 in premarket trading.
Recovery Amidst Challenging Year
Like many players in the auto industry, CarMax faced challenges in the previous year due to inflation and high interest rates, which impacted consumer affordability. However, the company has taken several actions to cut costs and strengthen its position. By reducing staffing levels, lowering advertising expenses, and halting stock buybacks, CarMax has been able to conserve cash and improve its financial outlook.
Boost in Gross Profit Expected
Analyst Seth Basham projects that CarMax will be able to deliver retail gross profit per unit (GPU) over $2,300 for its second fiscal quarter, and maintain consistent performance throughout the fiscal year. This is a significant improvement from the gross profit per unit figures in fiscal 2022, which were less than $2,300. The Wall Street consensus estimates for the second and third fiscal quarters stand at $2,288 and $2,240 respectively.
Positive Outlook Based on Cost Cuts and Market Factors
Wedbush’s optimism about CarMax is driven by the company’s successful cost-cutting measures. Additionally, the constrained inventories at dealerships caused by the United Auto Workers strike against Ford Motor, General Motors, and Stellantis could lead to favorable pricing for used cars. This, in turn, is expected to boost dealer margins and improve overall performance within the industry.
Strong Performance and Analyst Ratings
CarMax’s stock has shown impressive growth this year, with a 26% increase compared to the 12.5% rise of the S&P 500. Analyst views on the stock are mixed, with eight rating it as Buy or equivalent, eight rating it as Hold, and three recommending selling.