CarMax: Overstated Pricing Power, Intensifying Competition, and Execution Risks Undermine Earnings Outlook

Analyst Rajat Gupta CFA of J.P. Morgan maintained a Sell rating on CarMax, retaining the price target of $28.00.

Rajat Gupta CFA has given his Sell rating due to a combination of factors tied to CarMax’s weakened fundamentals and challenging competitive backdrop. He argues that recent pricing actions aimed at lifting same-store unit volumes are likely to significantly depress near‑term profitability, with retail gross profit per vehicle expected to fall and earnings remaining below prior peaks for several years. The stock’s current valuation also appears to assume a relatively smooth earnings path through FY28, which he views as unrealistic given the expected margin compression and below‑consensus EPS outlook, justifying a lower‑than‑historical earnings multiple and a $28 price target.

Rajat Gupta CFA’s rating is based on concerns that CarMax has overestimated its pricing power while competitors like Carvana and large dealer groups have strengthened their positions with better growth and unit economics. He highlights that any initial sales lift from price cuts may be difficult to sustain without substantial improvements in customer experience, inventory management, sourcing, and incentive structures, all of which require strong execution and cultural change under new leadership. Given the company’s history of uneven execution, lack of meaningful market‑share gains despite sizable omni‑channel investments, and weaker credit performance at its finance arm versus peers, he concludes that the risk‑reward profile of the shares remains skewed to the downside.

In another report released yesterday, Barclays also maintained a Sell rating on the stock with a $28.00 price target.