CarMax stock rating downgraded by Evercore ISI amid market share pressure

Investing.com - Evercore ISI downgraded CarMax (NYSE:KMX) from Outperform to In Line on Friday, slashing its price target to $52.00 from $80.00 as the used car retailer faces intensifying pressure on market share and credit performance. According to InvestingPro data, CarMax trades at a P/E ratio of 16.8x and maintains a prominent position in the Specialty Retail industry, though it suffers from weak gross profit margins of 12.5%.

The research firm cited competition from rivals like Carvana, which is set to grow used units by over 40% year-over-year, as a key factor in CarMax’s struggles. Evercore ISI acknowledged being "wrong" on its previous upgrade, noting that KMX stock has fallen 45% since February. The stock’s recent performance has been particularly challenging, with a 22% decline in the past week alone and trading near its 52-week low of $42.75.

CarMax’s planned $150 million cost-saving measures, including field headcount reductions, could potentially hurt customer experience and further pressure sales, according to the downgrade note. The firm also suggested that a gross profit per unit reset might be necessary as current initiatives are not driving topline growth. Despite these challenges, InvestingPro analysis shows the company maintains strong liquidity with a current ratio of 2.46, and analysts expect the company to remain profitable this year. Get access to 16+ additional ProTips and comprehensive financial analysis through InvestingPro’s detailed research reports.

Evercore ISI reduced its second-half outlook for CarMax Auto Finance profits, raising provisioning to account for choppy performance in 2022-2023 loan vintages. The firm noted that CarMax chose "a difficult time to add subprime to CAF" as consumer health indicators suggest moderation into year-end.

The research firm now favors Carvana for share gain, margin, and consistent credit trends, while also viewing auto parts retailers like O’Reilly Automotive and Genuine Parts Company as appealing for "small ticket defensive growth" in the current economic environment.

In other recent news, CarMax reported disappointing financial results for its fiscal second quarter of 2025. The company’s earnings per share (EPS) were $0.64, significantly below the forecasted $1.04, representing a 38.46% drop from expectations. Revenue also fell short, coming in at $6.59 billion compared to the anticipated $7.04 billion. This has raised concerns among investors and analysts about CarMax’s near-term performance. Following these results, Oppenheimer downgraded CarMax from Outperform to Perform, citing significant operational challenges. Truist Securities also lowered its price target for the company from $74 to $47 while maintaining a Hold rating. The downgrade and price target reduction highlight the ongoing challenges CarMax faces, including a 6.3% decline in second-quarter used unit comparable sales, which was below Truist’s estimate of a 3.0% increase. These developments point to market share challenges and strategic concerns for the used car retailer.

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