Heading into CarMax, Inc KMX's fourth-quarter earnings report Wednesday, investors were likely expecting weak same-store unit comps — which the company delivered, along with an EPS miss. In the view of Buckingham Research Group, the bullish narrative for the used car retailer remains unchanged.
Buckingham's Glenn Chin maintains a Buy rating on CarMax's stock with a price target lowered from $77 to $75.
CarMax reported an EPS and revenue miss, while same-store unit comps fell 8 percent, Chin said in a Thursday note. But the company also reported best-in-sector margins and GPUs, and shares are still "inexpensive" at 14x — the lower end of its historical valuation range, the analyst said.
CarMax's outlook can only get "better from here" for four reasons, Chin said:
- The company "dominates" the U.S. used car market, which comes with higher margins than new cars.
- CarMax's competitors will find it difficult to duplicate its success given its first-mover advantage and scale.
- Despite being a 20-year-old company, CarMax still has a long runway for growth, as its stores cover only 60 percent of the U.S. population.
- The stock is attractive after the recent pullback.
Buckingham's $75 price target implies a 16.8x multiple on fiscal 2019E EPS of $4.46. While a return to the high end of the stock's historic multiple of 20x-plus is "unlikely," a near-17x multiple is "easily justifiable" as fundamentals continue improving, Chin said.
Shares of CarMax were trading lower by 0.5 percent at the time of publication Thursday.
Photo courtesy of CarMax.
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