Don’t Write off the CarMax Stock Just Yet

Sep 30, 2022

So much for the used-car boom.

Thanks to sky-high inflation, that bubble has popped, as we can clearly see from the latest Carmax (KMX) earnings report.  Worse, “the entire US automotive industry is being hammered by soaring interest rates and a stretched consumer,” says Zero Hedge.

KMX just reported EPS of 79 cents a share, which missed estimates for $1.39.  Sales of $8.1 billion were also below expectations for $8.5 billion.  A year earlier, KMX earned $1.72 a share on sales of $8 billion.  Comparable store used vehicle unit sales were down 8.3%.

Vehicle affordability and “challenges that stem from widespread inflationary pressures, as well as climbing interest rates and low consumer confidence” impacted sales, said CarMax.  

However, don’t be quick to write the stock off just yet.

For one, according to a company press release:

“While this was a challenging quarter across the used car industry, our ongoing progress in strengthening and expanding our omnichannel experience continues to positively differentiate us and enable us to grow market share,” said Bill Nash, president and chief executive officer. “As we navigate the near-term pressures facing our industry, we are further sharpening our focus on driving additional operational efficiencies across our business. We will also remain focused on continuing our work to achieve our long-term goals, including further improving our omnichannel experience for our customers and associates through enhancing the seamlessness of our online and in-store offerings and growing our diversified business model.”

Two, analysts are still bullish on KMX.

“While there are no doubt increasing clouds on the horizon, we think the low valuations more than discount this,” said Seaport Research analyst Glenn Chin, who has a Buy rating on CarMax, as noted by Barron’s.  “RBC Capital Markets analyst Steven Shemesh maintained his Outperform rating. He believes Carmax’s steady reinvestment behind digital capabilities and consumer insights makes it one of the best-positioned in the space to continue gaining share.”

Shares of KMX are currently down 23%, or $20.37 to lows not seen since 2020.

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