Market Overview

Oppenheimer Upgrades CarMax, Says Used Car Sales, Tax Savings Support Bullish Move

Share:
Oppenheimer Upgrades CarMax, Says Used Car Sales, Tax Savings Support Bullish Move

Analysts at Oppenheimer assumed a "cautious" stance on CarMax, Inc (NYSE: KMX) in October, but three months later the firm is upgrading the stock. 

The Analyst

Oppenheimer's Brian Nagel upgraded CarMax's stock rating from Perform to Outperform with a price target boosted from $80 to $88.

The Thesis

A Perform rating was justified in October based on concerns of weakness in used car sales that could negatively impact CarMax's stock multiple, Nagel said in the upgrade note. (See the analyst's track record here.) 

While the company is not yet "out of the woods," there are sufficient reasons to support a bullish stance, the analyst said.

CarMax's stock has lost around 8 percent since early October, which makes it a meaningful underperformer versus the S&P 500 index, he said. Shares are now trading at a P/E multiple relative to the S&P 500 of less than 0.90x, which represents a level that is consistent with a multiyear trough that was achieved in early-2016, according to Oppenheimer. 

The pace of the Street's downward revisions to CarMax's used car sales estimates is encouraging given a backdrop that's "solid, if not improving," the analyst said. For instance, the spike seen in used vehicle prices after hurricanes Harvey and Irma is now waning, which suggests a better market supply of late model pre-owned vehicles.

CarMax and its shareholders are likely to be "outsized beneficiaries" of the tax bill, Nagel said. The entirely domestic nature of the business implies that CarMax has one of the highest tax rates in the retail space and could use part of the savings to fund a "more stepped-up" share buyback program, he said. 

Price Action

Shares of CarMax were trading higher by 1.17 percent at $70.65 at the time of publication. 

Related Links:

CarMax Shares May Be Idling At An Attractive Entry Point

Earnings Season: Your Guide To When Each Sector Reports

Photo courtesy of CarMax. 

Latest Ratings for KMX

DateFirmActionFromTo
Jul 2019MaintainsBuy
Jun 2019DowngradesBuyNeutral
Jun 2019MaintainsOutperform

View More Analyst Ratings for KMX
View the Latest Analyst Ratings

Posted-In: Brian Nagel cars Oppenheimer Tax ReformAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga

 

Related Articles (KMX)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
WUBABOCOM InternationalDowngrades
DLTROTR GlobalUpgrades
ARCCCompass PointDowngrades
GTYHCitiInitiates Coverage On7.0
NKEGuggenheimMaintains100.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

33 Stocks Moving In Thursday's Mid-Day Session

Mid-Day Market Update: Alcoa Drops On Earnings Miss; SPI Energy Shares Surge