Wedbush Upgrades CarMax On Potential For Strong Post-Coronavirus Recovery

CarMax, Inc KMX seems well-positioned to bounce back and capture market share as the economy emerges from the coronavirus pandemic, according to Wedbush.

The CarMax Analyst

Seth Basham upgraded CarMax from Neutral to Outperform and raised the price target from $70 to $90.

The CarMax Thesis

Wedbush’s proprietary sales tracker suggests an improvement in CarMax’s used unit comps through April to a run rate of negative 38%, Basham said in the Tuesday upgrade note. (See his track record here.)

This run rate could improve further to negative 30% as states ease stay-at-home restrictions and more of the company’s stores become fully operational, the analyst said. This suggests an estimate of negative 40% for the fiscal first quarter, which is significantly better than the consensus estimate of negative 62%, he said. 

Referring to the back half of 2020, Basham said that consumer preference for private transport over public alternative will be a positive trend, although the impact may be partially offset by people driving less amid continued work-from-home and social distancing measures.

Consumer spending power on discretionary goods is rising due to government stimulus payments and lower spending on travel and entertainment, the analyst said. 

CarMax is poised to gain share in the used vehicle market, as smaller sellers lack omnichannel capabilities and may crumble as sales decline for an extended period, he said.

On the other hand, CarMax is well-positioned in the new environment with several purchase, delivery and contactless pickup options, according to Wedbush. 

KMX Price Action

Shares of CarMax were down 0.78% at $75.37 at the time of publication Wednesday ahead of the close. 

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