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Investing.com -- JP Morgan upgraded CarMax (NYSE:KMX) to Neutral from Underweight, saying the stock’s prolonged underperformance and compressed valuation reflect more realistic expectations amid improving supply dynamics and modest strategic progress.
The firm said CarMax shares, which have lagged peers and broader indices over multiple timeframes, now trade at roughly 13x FY2 consensus EPS, well below the long-term average of 16.5x.
The current valuation also represents CarMax’s narrowest premium to traditional franchise dealers.
While execution challenges persist, JPM said investor sentiment is already near “rock bottom” and management is now more responsive, albeit slower than hoped.
It sees potential support for the stock from recovering late-model used car supply starting in the first half of 2026 and continuing into 2027.
JPM also noted CarMax still faces hurdles including weak market share, underwhelming benefits from its omni-channel investments, and inferior loan underwriting performance at its auto finance arm, CAF, compared to peers.
Competitive pressure from Carvana (NYSE:CVNA) has intensified, with JPM estimating CVNA is growing retail unit volumes at about 45% year-over-year and achieving double the unit-level profitability of CarMax.
Still, ongoing cost reductions, increased warranty penetration, and a shift to off-balance sheet financing could gradually improve unit economics. CarMax’s share buyback authorization, roughly 20% of market cap, could also provide support.
JPM sees shares likely to trade in a new range of $45 to $70, versus the prior $65 to $90, and said a re-rating would require CarMax to regain at least a 300 basis point market share edge over the industry, as it had pre-omni-channel expansion.