On Wednesday, CarMax Inc . (NYSE:KMX) saw an upgrade in its stock rating from a major financial firm. Needham shifted its stance on the automotive retailer, moving from a Hold to a Buy position. Alongside the upgrade, Needham also set a new price target for CarMax shares at $99.00.
The upgrade is based on the anticipation of a recovery in the used-vehicle market, which recent data suggests is underway. Needham believes that CarMax, as the industry leader, stands to gain significantly from this trend.
The firm predicts a multi-year recovery phase for the market, which could be bolstered by a potential easing of interest rates and an increase in the supply of used vehicles. These factors are expected to drive down average selling prices (ASPs) and monthly payments for consumers.
Needham's confidence is also reflected in its retail unit estimates for fiscal years 2025 and 2026, which are above consensus. These projections are based on the expectation that CarMax will resume its market share gains and that the company's investments in its omni-channel strategy will lead to growth in units sold.
The outlook for CarMax's consumer finance business has also improved according to Needham. The firm notes that CarMax's auto finance spreads are widening and the company is taking lower loan loss provisions. Loans made at the peak of used-vehicle ASPs are maturing, which, along with a strategic focus on retail units and market share gains, is anticipated to have a positive impact on CarMax's stock.
The price target of $99.00 set by Needham is based on a 20-times multiple of their fiscal year 2026 earnings per share (EPS) estimate. This target price reflects a discount to their earnings growth forecast for CarMax. The financial firm's outlook suggests a positive trajectory for the retailer in the coming years.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.