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Downshifting CarMax To A Perform Rating, Analyst Sees Continuing Sales Momentum In Question

Downshifting CarMax To A Perform Rating, Analyst Sees Continuing Sales Momentum In Question
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Oppenheimer Upgrades CarMax, Says Used Car Sales, Tax Savings Support Bullish Move

Analysts at Oppenheimer no longer hold a bullish rating on CarMax, Inc (NYSE: KMX)'s stock after a nearly 45 percent return over the past year. The firm's Brian Nagel downgrades CarMax's stock rating from Outperform to Perform with an unchanged $80 price target (see Nagel's track record here).

CarMax's profile as being an "innovative omni-channel business" remains unchanged despite the downgrade, Nagel commented in his note. The company's "upbeat, longer term outlook" also remains unchanged but the stock is now vulnerable to even the most "modest changes" in underlying fundamentals.

"We often disagree with the myriad bearish theories that weigh on KMX, but nonetheless recognize the susceptibility of shares to even modest, near-term fundamental challenges," the analyst wrote.

However, there are nevertheless a few reasons for investors to be concerned with the auto company, Nagel acknowledged. The Street is forecasting the company to report upwards of a low- to mid-single-digit used unit comp gain in its fourth quarter, which is above the analyst's own estimate of flat to plus 2 percent. As such, the company's momentum remains "intact" but "maybe not enough" in the near term.

Bottom line, CarMax's prospects remain unchanged amid multiple internal and external tailwinds but difficult comparisons could disrupt top-line momentum and result in the Street revising their forecasts lower which could impact the stock.

"We await a moderation in Street estimates and/or a pullback in the now premium KMX multiple before re-recommending shares near term," the analyst concluded.

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Image Credit: By Ildar Sagdejev (Specious) - Own work, GFDL, via Wikimedia Commons

Latest Ratings for KMX

Jan 2018OppenheimerUpgradesPerformOutperform
Jan 2018BerenbergUpgradesHoldBuy
Dec 2017Moffett NathansonInitiates Coverage OnNeutral

View More Analyst Ratings for KMX
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