CarMax stock rises after Q1 results beat expectations

Investing.com - CarMax (NYSE:KMX) stock gained on Monday after the used car retailer reported first-quarter results that exceeded market expectations, despite maintaining a cautious outlook from analysts. The company, with a market capitalization of $10.3 billion and annual revenue of $28.7 billion, saw its shares rise to $68.57, though still trading below InvestingPro’s calculated Fair Value.

Mizuho (NYSE:MFG) maintained its Neutral rating and $80.00 price target on CarMax following the quarterly report. The firm noted that the results were "much stronger than certain tracking data into the print," which contributed to the share price increase. According to InvestingPro data, CarMax maintains strong liquidity with a healthy current ratio of 2.39, though it faces challenges with relatively weak gross profit margins of 12.47%. Get access to 8 more exclusive ProTips and comprehensive analysis with an InvestingPro subscription.

CarMax management expressed growing confidence in its digital capabilities, deciding to allocate more advertising dollars toward its omnichannel strategy. The company’s CFO Enrique Mayor-Mora indicated that used unit comparable sales are expected to trend positive for the year. This strategic focus appears promising, as the company trades at an attractive PEG ratio of 0.44, suggesting potential undervaluation relative to its growth prospects.

The company believes it has resolved the main issues in its digital operations and reached a point where "consumers will not be disappointed by online shopping," according to Mizuho’s research note. This fiscal year is expected to be the first in which CarMax operates more efficiently in terms of cost structure compared to its pre-omnichannel period.

Mizuho also highlighted that CarMax’s strength in vehicles priced above $40,000 likely results from new car volumes shifting into the used market, with the company positioned to "quickly chase that demand, if needed." The firm added that the tighter selling, general and administrative expenses are sustainable, though the first quarter typically sees the most leverage due to higher volumes.

In other recent news, CarMax Inc . reported impressive financial results for the first quarter of fiscal year 2026, exceeding Wall Street expectations. The company achieved an earnings per share (EPS) of $1.38, surpassing the forecasted $1.19, marking a 42% year-over-year increase. Revenue reached $7.5 billion, slightly above the anticipated $7.54 billion, reflecting a 6% growth from the previous year. CarMax’s digital and omni-channel sales strategies played a significant role in this performance, with 80% of retail unit sales supported by digital capabilities. The company maintained its guidance for fiscal year 2026, aiming to grow sales and market share. CarMax also plans to increase its CarMax Auto Finance (CAF) penetration from 42-43% to 50% and expects service margins to grow, particularly in the first half of the year. In terms of analyst activity, there were no specific mentions of upgrades or downgrades in the recent reports. These developments highlight CarMax’s strategic focus and robust financial health.

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