The improving environment in the used car market, characterized by increasing demand and moderating prices, should result in “normalized profitability” for CarMax (NYSE:KMX) in the company’s fourth-quarter results, leading Oppenheimer to reiterate his Outperform rating on the stock and $105 price target, a 27% premium to Monday’s closing price.
“We expect the fourth quarter results to demonstrate another notable ‘stepping stone’ in KMX’s path to sustained top-line and bottom-line expansion and a positive catalyst for the stock over time,” said the analyst team at Oppenheimer in Tuesday’s research report, placing the company as a top mid-cap pick within consumer growth and e-commerce coverage.
The company’s positive rating, however, is based on the following factors, including: CarMax (KMX)’s ability to capture market share within the fragmented later-model and used vehicle markets; an expanded suite of digital and online capabilities that enable greater efficiency and better connection to the target market; improving profitability by moderating outsized investment spending; and ease competitive pressure.
The company lowered its fourth-quarter profit expectations to $0.48 per share from $0.55, compared to the Street consensus of $0.46.
For FY24, Oppenheimer expects EPS of $3.55 from $3.83 previously, and lowered its FY25 EPS estimate to $4.30 from $4.85.
CarMax (KMX) will report fourth-quarter results on April 11.