Needham cuts CarMax price target to $92, maintains buy rating

On Friday, Needham analysts adjusted their outlook on CarMax stock (NYSE: NYSE:KMX), lowering the price target from $101.00 to $92.00 while still maintaining a Buy rating. The adjustment comes as the stock has experienced a significant 12.24% decline over the past week, currently trading at $66.45. According to InvestingPro data, CarMax, with its $10.19B market cap, shows mixed signals with 10+ additional insights available to subscribers. Following the release of CarMax's fourth-quarter results and the company's commentary, the firm decided to adjust the price target. In the words of the analysts, "We reiterate our Buy rating but lower our price target to $92 following Q4 results and company commentary."

CarMax is considered to be in a favorable position to benefit from an improving used vehicle market and is expected to leverage its omni-channel investments effectively. With a solid current ratio of 2.3, indicating strong liquidity, and gross profit margins of 12.18%, the company maintains a stable financial foundation. However, the analysts noted that investor excitement might be tempered due to a miss in comparable store sales, despite the used vehicle sector being viewed as relatively stable compared to retail peers.

The analysts pointed out that macroeconomic uncertainty is becoming a factor again, with concerns about rising average selling prices (ASPs) for used vehicles following the increase in new vehicle ASPs due to tariffs. There is also a risk of demand reduction similar to what was seen in 2022, but the analysts believe this scenario is unlikely given the current different market conditions.

The new price target of $92 is based on a 10x multiple of the firm's projected adjusted EBITDA for fiscal year 2027. This valuation represents a discount compared to projected earnings growth, offering a higher margin of safety relative to other growth-oriented peers in the used vehicle market. The analysts concluded that despite the challenges, CarMax's stock offers a compelling value proposition at the revised price target.

In other recent news, CarMax reported its fourth-quarter fiscal year 2025 earnings, revealing an EPS of $0.58, which missed the forecasted $0.65. Despite this, the company's revenue increased by 7% year-over-year to $6 billion. Evercore ISI maintained an Outperform rating with a $100 price target, citing CarMax's ability to stabilize its share in the 0-10 year-old vehicle segment and the growth in CarMax Auto Finance profits. However, JPMorgan reiterated an underweight rating with a $65 price target, noting a reduction in forecasted EPS for fiscal years 2026 and 2027 due to anticipated declines in used car demand.

Truist Securities adjusted its outlook, reducing CarMax's price target from $88 to $72 while maintaining a Hold rating. The firm acknowledged solid performance but highlighted macroeconomic uncertainties affecting long-term sales goals. Meanwhile, CFRA upgraded CarMax to a Strong Buy, albeit with a reduced price target of $95, expressing optimism about CarMax's long-term growth prospects despite the recent EPS shortfall.

CarMax's digital sales strategy showed strong growth, with digital sales increasing by 25% over the fiscal year. The company also reported a 6.2% rise in retail used vehicle volumes and repurchased $99 million of its stock during the quarter. Analysts noted that CarMax's expansion plans, including new store locations and reconditioning centers, aim to enhance its market share and digital sales capabilities.

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