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

CarMax, IncKMXBrian NagelCarMax'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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