Goldman Sachs Upgrades CarMax To Buy, Projects 17% Upside

In a report published Wednesday, Goldman Sachs analyst Matthew J. Fassler upgraded the rating on

from Neutral to Buy, citing near-term visibility combined with long term opportunity. The price target was reduced from $80 to $78 due to "lower market multiple." CarMax shares have plummeted 11 percent after reaching a peak on April 2, as compared to a flat S&P 500 during the same period. Analyst Matthew Fassler believes that this downturn has created "an appealing entry point." In the report Goldman Sachs noted, "We are drawn to a strong used car cycle, lagging the new car SAAR by several years, which we expect to help propel ongoing solid SSS growth; a powerful unit growth story, with highly visible 8% annual capacity growth, driving sales growth from new units and economies of scale." Moreover, Fassler expects CarMax to beat consensus expectations for 2Q, with a return to "typical seasonality in the core used car business." The decline in the provision for credit losses, which was a concern area for the market in 1Q, is "largely supported by stronger showings in monthly credit data." Fassler believes that there would be a "reacceleration to double-digit growth" in core retail EBIT and EPS in 2Q and this could continue through 2H.