CFRA raises CarMax stock rating to Strong Buy, cuts target to $95

On Thursday, CFRA analyst Garrett Nelson upgraded CarMax stock, trading on the New York Stock Exchange under the ticker (NYSE:KMX), from Buy to Strong Buy. However, the price target was adjusted downwards from $115.00 to $95.00. Nelson cited a revised 12-month target based on a February year 27 price-to-earnings (P/E) ratio of 19.6 times, which reflects a discount to CarMax's historical five-year mean forward P/E of 23.1 times. Currently trading at $66.42 with a P/E ratio of 22.34x, the stock sits near its 52-week low of $65.83. InvestingPro analysis reveals the company's strong liquidity position with a current ratio of 2.3, though their Fair Value model suggests the stock may be slightly overvalued at current levels.

The adjustment follows CarMax's recent earnings report for the February quarter, which revealed earnings per share (EPS) of $0.58, an 81% increase from $0.32 in the same quarter last year but below the consensus estimate of $0.66. This shortfall was attributed to margins that did not meet expectations, despite net sales climbing 6.7% to $6.0 billion, which was $20 million above the consensus. The gross margin expanded by 70 basis points to 11.1%, which was slightly below the consensus by 10 basis points. With trailing twelve-month revenue of $27.8 billion and a gross profit margin of 12.18%, CarMax maintains its position as a prominent player in the Specialty Retail industry. Discover more detailed financial metrics and exclusive insights with InvestingPro, including 8 additional ProTips and comprehensive valuation analysis.

The rise in sales was primarily driven by a 6.2% increase in retail used vehicle volumes. During the quarter, CarMax also repurchased $99 million of its stock. Nelson recommended investors consider the stock's recent sell-off as an opportunity to buy, positioning CarMax as a potential beneficiary from tariffs impacting the new vehicle market and a consumer shift towards more affordable used vehicles.

Despite CarMax withdrawing its previous long-term guidance due to macroeconomic uncertainties, Nelson remains optimistic. He does not believe investors should be concerned and anticipates a year-over-year EPS growth of 21% in fiscal year 26, followed by a further 24% increase in fiscal year 27. Nelson's outlook suggests confidence in CarMax's performance in the upcoming years, despite the recent adjustment in financial targets.

In other recent news, CarMax Inc . reported its fourth-quarter fiscal year 2025 earnings, showing a mixed financial performance. The company revealed earnings per share (EPS) of $0.58, which fell short of the anticipated $0.65. However, CarMax's revenue rose by 7% year-over-year to reach $6 billion, slightly surpassing the forecast of $5.93 billion. Despite the revenue increase, the earnings miss contributed to a notable decline in the company's stock value. The company also reported a strong growth in digital sales, which increased by 25% for the fiscal year.

Additionally, CarMax has announced plans to expand its operations with new store locations and reconditioning centers. On the analyst front, there were no specific upgrades or downgrades mentioned, but firms like William Blair and Wedbush Securities participated in the earnings call, indicating ongoing interest and scrutiny from the investment community. CarMax's CEO, Bill Nash, expressed confidence in the company's growth prospects, emphasizing the strategic focus on enhancing digital sales capabilities and expanding market share. The company aims for a high-teens EPS compound annual growth rate (CAGR) and mid-single-digit retail unit growth, despite withdrawing specific long-term revenue targets due to macroeconomic uncertainties.

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