Buckingham Likes America's Car-Mart After Strong Credit Environment Drives Big Quarter, Optimism

America's Car-Mart, Inc CRMT smashed quarterly earnings estimates, and Buckingham Research said the credit environment is likely to be an “ongoing gift to shareholders.”

The Analyst

Buckingham’s Hugh Miller kept a Buy rating on the stock with a $105 target price.

The Thesis

People are making their car payments.

Net charge-offs are down, and the average down payment size is up, and when car buyers make their payments, it’s good for companies in the consumer finance business.

Several metrics of consumer payments have improved, and Car-Mart has done a good job taking advantage of the environment, Miller said. And it should continue.

“Despite a shrinking demographic of subprime consumers, we look for CRMT's self help initiatives (online credit application, digital inventory, etc.) coupled with strengthening credit trends to foster robust EPS growth,” Miller wrote in a note.

Strong Earnings Beat

Miller noted Car-Mart’s first-quarter EPS of $2.21 “trounced” Street expectations on the continued improvement in credit metrics. The only slightly concerning number was in unit volume growth.

“In a perfect world, it would have been nice to see a rise in unit volume growth, but we don't want to lose sight of the importance of maintaining credit discipline for a subprime auto lender,” Miller said. “Moreover ... overall revenue advanced 5% YoY to $172 million and the results clearly demonstrate how powerful improving credit costs can be to the bottom line.”

Price Action

Shares of America's Car-Mart were up 2% at $92.84 Friday afternoon.

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