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On Friday, RBC Capital Markets adjusted its price target on CarMax Inc (NYSE:KMX) shares, bringing it down to $80 from the previous $103, while keeping an Outperform rating on the stock. The adjustment comes as CarMax shares trade at $67.43, having declined 12.24% in the past week. According to InvestingPro data, the stock is currently trading near its Fair Value. Steven Shemesh, an analyst at RBC Capital, cited the company's strong fourth-quarter results and positive momentum going into the first quarter, with early comparable sales figures showing a high single-digit increase.
Despite the solid performance, Shemesh noted that the stock experienced weakness following the earnings report, likely due to CarMax management's expectations for higher loan loss provisions in the first quarter and the influence of broader economic factors. He suggested that the market's reaction might be excessive.
The revised price target reflects a change in earnings per share (EPS) estimates, which have been lowered to align with management's new EPS algorithm. For fiscal years 2025 and 2026, RBC Capital now projects adjusted EPS of $3.65 and $4.31, respectively, down from their prior estimates of $4.41 and $5.17.
The new price target is based on approximately 18.5 times the revised 2026 EPS estimate of $4.31, a decrease from the prior multiple of 20 times. This adjustment in the price target multiple is in response to a lower market multiple, according to Shemesh's commentary.
In other recent news, CarMax reported a fourth-quarter earnings per share (EPS) of $0.58, an 81% increase from the previous year, but below the consensus estimate of $0.66. The company saw a 6.7% rise in net sales to $6.0 billion, surpassing expectations by $20 million. Despite this, CarMax's used unit comparable sales increased by 5.1%, missing the forecasted 6.4%. Analysts from Needham, Evercore ISI, and CFRA have adjusted their price targets for CarMax, with Needham lowering it to $92 while maintaining a Buy rating, and CFRA upgrading the stock to Strong Buy but cutting the target to $95. Evercore ISI maintained its $100 target despite the EPS miss, citing potential benefits from tariffs affecting the new vehicle market. Truist Securities reduced its price target to $72, noting the removal of timeframes from CarMax's long-term goals due to macroeconomic uncertainties. JPMorgan reiterated an underweight rating with a $65 target, highlighting CarMax's lagging performance compared to peers. These developments come as CarMax navigates a complex market environment, balancing opportunities and challenges in the automotive sector.
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