What's In Store For CarMax In Q2 - Analyst Sees Easing Growth Comparisons, Cost Controls & More

Oppenheimer analyst Brian Nagel reiterated an Outperform rating on CarMax Inc KMX with a price target of $105.

CarMax will announce Q2 results on Thursday, September 28. 

Lately, CarMax has struggled amid a bloated cost infrastructure, and elevated used car prices and higher rates stymied demand for pre-owned vehicles, the analyst notes. 

The analyst is increasingly optimistic that, as macro and sector tailwinds gradually abate, KMX will emerge as an even more robust, better-positioned operator within the still fragmented used car sector.

Nagel reviewed trends at KMX and data across the space. The analyst is increasingly optimistic that while headwinds for KMX are apt to persist, a combination of easing unit sales growth comparisons, continued GPU enhancements, ongoing cost controls, and solidifying trends in finance should underpin improving fundamental momentum and a path toward consistent upside surprises, for the company.

For the quarter to be reported, the EPS forecast of $0.73 is consistent with Street figures and predicated upon used car unit comps of down 7-9% and estimated used car GPU of $2250 (vs. $2282 in Q222, Aug.).

For FY23 (Feb.2024), the analyst looks for EPS of $2.80 (down from $3.03) vs. a current Street figure of $3.04, based upon used unit comps of down 2-4%.

Per data compiled by Manheim, the analyst notes that used car prices in the US are now tracking 16% off all-time highs set in Jan. 2022. 

While potentially disruptive in the near term, the analyst looks upon normalizing values for pre-owned vehicles as a potential, meaningful driver of improving consumer demand over the next several months.

Price Action: KMX shares closed higher by 0.62% to $78.25 Tuesday.