Morgan Stanley assumes coverage on CarMax stock with Overweight rating

Investing.com - Morgan Stanley (NYSE:MS) has assumed coverage on CarMax (NYSE:KMX), currently trading at $67.21, with an Overweight rating and a price target of $80.00, suggesting approximately 20% upside potential. According to InvestingPro data, the company maintains a market capitalization of $10.1 billion and is considered a prominent player in the Specialty Retail industry.

The firm notes that CarMax has delivered its fourth consecutive quarter of mid-to-high single-digit year-over-year same-store growth, along with strength in gross profit per unit and demonstrable operating leverage. These positive factors were partially offset by an uncertain outlook affecting second-half volumes and an evolving CarMax Auto Finance (CAF) strategy. InvestingPro data reveals the company’s gross profit margin stands at 12.47%, reflecting some operational challenges in the current market environment.

Morgan Stanley believes CarMax is successfully transitioning from its heavy investment period in omnichannel development to monetizing profitable growth. The company’s strategy includes expanded reconditioning capacity, more profitable sourcing channels, increasing CAF financing penetration, and omnichannel options for consumers.

The firm expects CarMax can achieve mid-single-digit percentage same-store sales growth while improving selling, general and administrative expenses toward the company’s target of mid-70s percentage of gross profit. This operational execution would demonstrate CarMax’s ability to remain competitive with Carvana (NYSE:CVNA).

Morgan Stanley’s risk-reward assessment indicates an attractive investment opportunity, with upside to their $130 bull case valuation exceeding downside to their $45 bear case by approximately 3 to 1. The stock currently trades at a P/E ratio of 18.54x, and InvestingPro analysis shows additional valuable metrics and insights available, including 8 key investment tips and a comprehensive Fair Value assessment. Discover the full potential of your investment decisions with InvestingPro’s detailed research report, available along with 1,400+ other top US stocks.

In other recent news, CarMax reported first-quarter results for fiscal year 2026 that exceeded Wall Street expectations, with an earnings per share (EPS) of $1.38, surpassing the forecasted $1.19. The company’s revenue reached $7.5 billion, slightly above the anticipated $7.54 billion. CarMax’s digital and omnichannel sales strategies played a significant role in this performance, with 80% of retail unit sales supported by digital capabilities. Following the earnings report, RBC Capital raised its price target for CarMax to $81, maintaining an Outperform rating, while Truist Securities increased its target to $74, keeping a Hold rating. Both firms acknowledged CarMax’s solid quarterly performance, though Truist expressed concerns about future comparisons and sustainability. Additionally, Mizuho (NYSE:MFG) maintained a Neutral rating with an $80 price target, noting the company’s growing confidence in its digital operations. CarMax plans to continue enhancing its omnichannel strategy, aiming to grow sales and market share in the used vehicle space.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.