Evercore ISI holds CarMax stock at $100 target despite EPS miss

On Friday, CarMax (NYSE:KMX) shares faced premarket pressure after Evercore ISI maintained an Outperform rating and a $100.00 price target despite the company's fourth-quarter earnings per share (EPS) falling short of analyst expectations. The stock, which has declined over 12% in the past week according to InvestingPro data, is currently trading near its 52-week low of $63.23. CarMax reported a fourth-quarter EPS of $0.58, which, while up 81% year-over-year, missed the consensus estimate of $0.66. A non-cash impairment charge related to the Edmunds lease accounted for $0.06 of the shortfall. The used car retailer saw a 5.1% increase in retail used unit comparable sales, which was an improvement over the previous 4% trend but still below the anticipated 6.4%. Total (EPA:TTEF) retail units sold increased by 6.2%, contrasting with the industry's approximate high-single-digit growth.

Despite the miss in comparable sales, CarMax's gross profit per unit (GPU) rose by 3.1% to $2,322, surpassing the expected $2,283. The company's share has stabilized since the second quarter, aided by normalized vehicle depreciation trends. CarMax's share remained steady at 3.7% in the 0-10 year-old vehicle segment for the calendar year 2024. With a current market capitalization of $10.19 billion and trailing twelve-month revenue of $27.8 billion, CarMax maintains its position as a prominent player in the specialty retail industry. InvestingPro analysis reveals that while the company's gross profit margin stands at 12.18%, there are 8 additional key insights available to subscribers about CarMax's financial health and market position. CarMax Auto Finance (CAF) profits exceeded expectations, reaching $159 million, an 8% increase year-over-year.

The wholesale segment of the business saw a 3% rise in units sold year-over-year, although the wholesale profit per unit decreased by $75 to $1,045, remaining at historically high levels. Evercore ISI suggests that the progression of comparable sales into April will be crucial for CarMax, with the expectation that unit sales are likely to improve in the first quarter (March-May) and gross profit per unit to firm up.

The analyst noted that tariffs present a wildcard, potentially widening the price gap between new and used vehicles and driving consumers towards the used market, which would support industry growth and price/margin dynamics. CarMax has updated its long-term EPS growth outlook to include double-digit earnings growth for years to come, driven by ongoing growth in retail and wholesale units and market share gains. With $1.94 billion in share repurchase authorization remaining, CarMax expects to achieve a high-teen EPS growth compound annual growth rate (CAGR) when retail unit growth is in the mid-single digits.

Evercore ISI's preliminary view suggests that CarMax's EPS for the calendar year 2025 could settle between $3.70 and $4.10, adjusting for the fourth-quarter miss but balanced by likely improving trends due to tariff-driven pre-buy. According to InvestingPro's Fair Value analysis, the stock currently appears slightly overvalued, with a P/E ratio of 27.29 and relatively high EBIT and EBITDA valuation multiples. Investors seeking deeper insights can access CarMax's comprehensive Pro Research Report, which is part of InvestingPro's coverage of over 1,400 US stocks, offering detailed analysis and actionable intelligence for informed investment decisions. The EPS for the calendar year 2026 is expected to adjust to around $4.40-$4.70, with calendar year 2027 trending towards a normalized $5.00+. The firm posits that CarMax's ability to gain market share while driving consistent double-digit EPS growth could determine whether the company achieves a 19-21x price-to-earnings multiple in the future, versus a more typical 15-17x. Enhanced multichannel capabilities, a rational competitive landscape, and a focus on selling older/higher mileage vehicles are seen as potential catalysts for improved market share trends for CarMax. Further insights were anticipated following the company's call at 9 am.

In other recent news, CarMax reported its fourth-quarter fiscal year 2025 earnings, revealing a mixed financial performance. The company posted earnings per share (EPS) of $0.58, falling short of the forecasted $0.65. Despite this, CarMax saw a 7% year-over-year increase in total sales, reaching $6 billion. Truist Securities adjusted its outlook on CarMax by reducing the price target from $88.00 to $72.00, while maintaining a Hold rating, following CarMax's solid performance but slightly missed expectations in used unit comp sales.

CFRA upgraded CarMax stock from Buy to Strong Buy, though it lowered the price target from $115.00 to $95.00. This decision was influenced by CarMax's recent earnings report, which showed an 81% increase in EPS from the previous year, despite missing consensus estimates. Meanwhile, JPMorgan maintained its underweight rating on CarMax, with a price target of $65.00, citing a decrease in forecasted EPS for fiscal years 2026 and 2027 due to anticipated declines in used car demand.

CarMax's online sales have grown significantly, constituting around 15% of their sales mix. However, the company's market share has not increased, and profitability improvements remain limited despite strategic changes. CarMax has also withdrawn its long-term sales goals due to macroeconomic uncertainties, including potential impacts from auto tariffs. The company continues to expand its digital capabilities and store locations, aiming for long-term growth despite current challenges.

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