CarMax (KMX) AI Stock Analysis

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CarMax

(NYSE:KMX)

62Neutral

CarMax's stock score reflects challenges in financial performance with declining revenues and high leverage, countered by strong results in the latest earnings call showing robust EPS growth. Technical indicators suggest bearish momentum, and the valuation appears stretched, impacting the overall score.

Positive Factors

Earnings

Revenue is expected to rise roughly 10%, which is above consensus expectations.

Market Position

CarMax is the largest retailer of used vehicles in the United States and offers a complete omni-channel experience.

Operational Performance

CarMax's operational consistency in both credit and used unit GPU provides confidence in the company's estimates.

Negative Factors

Affordability Challenges

Higher prices are likely to hurt affordability further, impacting industry volumes negatively.

Competition

Online adoption for used car sales is continuing to ramp, with Carvana meaningfully outpacing CarMax's digital sales growth.

Industry Demand

The demand bump from tariffs is expected to be temporary, with affordability challenges likely hurting industry demand.

CarMax (KMX) vs. S&P 500 (SPY)

Market Cap

$11.65B

Dividend YieldN/A

Average Volume (3M)2.55M

Price to Earnings (P/E)25.1

Beta (1Y)1.08

Revenue Growth-2.46%

EPS Growth-6.19%

CountryUS

Employees29,836

SectorConsumer Cyclical

Sector Strength60

IndustryAuto - Dealerships

Share Statistics

EPS (TTM)2.94

Shares Outstanding153,799,970

10 Day Avg. Volume3,332,369

30 Day Avg. Volume2,549,591

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)0.42

Price to Cash Flow (P/CF)-117.40

P/FCF Ratio0.00

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$90.17

Price Target Upside22.25% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering9

CarMax Business Overview & Revenue Model

Company DescriptionCarMax, Inc., together with its subsidiaries, operates as a retailer of used vehicles in the United States. The company operates through two segments, CarMax Sales Operations and CarMax Auto Finance. It offers customers a range of makes and models of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles; and extended protection plans to customers at the time of sale, as well as sells vehicles that are approximately 10 years old and has more than 100,000 miles through wholesale auctions. The company also provides reconditioning and vehicle repair services; and financing alternatives for retail customers across a range of credit spectrum through its CarMax Auto Finance and arrangements with various financial institutions. As of February 28, 2022, it operated approximately 230 used car stores. CarMax, Inc. was founded in 1993 and is based in Richmond, Virginia.

How the Company Makes MoneyCarMax generates revenue primarily through the sale of used vehicles. The company purchases vehicles from auctions, customers, and other sources, which are then reconditioned and sold at a markup. CarMax also earns money from selling extended service plans and financing products, either through its own CarMax Auto Finance division or third-party financial institutions. The company's revenue model is further supported by its online sales platform, which allows customers to browse and purchase vehicles online, sometimes complemented by in-store visits. The combination of retail vehicle sales, financing, and service plans constitutes the core revenue streams for CarMax.

CarMax Financial Statement Overview

Summary

CarMax faces challenges with declining revenues and high leverage, impacting financial stability. Profitability metrics suggest moderate performance, while cash flow generation indicates some positives. To strengthen its financial position, CarMax needs to focus on revenue growth and managing debt levels effectively.

Income Statement

Positive

CarMax's TTM (Trailing-Twelve-Months) revenue shows a decline from the previous annual period. The gross profit margin is approximately 10.6%, and the net profit margin stands at 1.8%, indicating moderate profitability. EBIT and EBITDA margins are 1.1% and 2.3%, respectively, reflecting some operational efficiency but a need for improvement. The revenue growth has been negative, suggesting challenges in maintaining sales momentum.

Balance Sheet

Neutral

The debt-to-equity ratio is relatively high at approximately 2.84, indicating significant leverage which could pose financial risks. The return on equity (ROE) is around 7.4%, showing moderate shareholder returns. The equity ratio is 22.8%, suggesting a reasonable level of equity financing, but the high leverage may impact financial stability.

Cash Flow

Positive

CarMax's free cash flow has shown improvement in the TTM period, with a positive free cash flow of $337 million. The operating cash flow to net income ratio is 1.71, suggesting healthy cash generation relative to profits. However, the free cash flow to net income ratio is lower at 0.73, indicating room for improvement in cash conversion.

TTM	Mar 2024	Mar 2023	Mar 2022	Mar 2021	Mar 2020
Breakdown
Income Statement		Total Revenue
25.98B	26.54B	29.68B	31.90B	18.95B	20.32B
	Gross Profit
2.68B	2.71B	2.80B	3.29B	2.38B	2.72B
	EBIT
786.46M	942.20M	1.07B	1.82B	1.05B	1.24B
	EBITDA
1.22B	1.04B	1.02B	1.83B	1.29B	1.45B
	Net Income Common Stockholders
460.96M	479.20M	484.76M	1.15B	746.92M	888.43M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
18.28M	574.14M	314.76M	102.72M	132.32M	58.21M
	Total Assets
2.56B	27.20B	26.18B	26.34B	21.54B	21.08B
	Total Debt
150.57M	19.53B	18.93B	19.27B	15.53B	15.85B
	Net Debt
132.29M	18.74B	18.62B	19.17B	15.39B	15.79B
	Total Liabilities
622.61M	21.12B	20.57B	21.10B	17.18B	17.31B
	Stockholders Equity
1.93B	6.07B	5.61B	5.24B	4.36B	3.77B
Cash Flow		Free Cash Flow
337.51M	-6.69M	860.62M	-2.86B	503.22M	-568.50M
	Operating Cash Flow
787.70M	458.62M	1.28B	-2.55B	667.76M	-236.61M
	Investing Cash Flow
-457.70M	-467.00M	-425.77M	-523.75M	-128.18M	-389.36M
	Financing Cash Flow
-614.24M	307.79M	-710.18M	3.10B	-424.02M	686.98M

CarMax Technical Analysis

Technical Analysis Sentiment

Negative

Last Price73.76

Price Trends

50DMA

79.96

Negative

100DMA

80.91

Negative

200DMA

78.96

Negative

Market Momentum

MACD

-1.31

Negative

RSI

54.72

Neutral

STOCH

90.09

Negative

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For KMX, the sentiment is Negative. The current price of 73.76 is below the 20-day moving average (MA) of 74.09, below the 50-day MA of 79.96, and below the 200-day MA of 78.96, indicating a bearish trend. The MACD of -1.31 indicates Negative momentum. The RSI at 54.72 is Neutral, neither overbought nor oversold. The STOCH value of 90.09 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for KMX.

CarMax Risk Analysis

CarMax disclosed 26 risk factors in its most recent earnings report. CarMax reported the most risks in the “Production” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

CarMax Peers Comparison

Overall Rating

UnderperformOutperform

Sector (59)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
ABG	75 Outperform	$4.18B	9.88	12.76%	―	16.11%	-24.72%
LAD	73 Outperform	$7.41B	9.53	12.47%	0.75%	16.75%	-18.09%
PAG	70 Outperform	$9.46B	10.32	18.50%	3.13%	3.14%	-11.22%
GPI	66 Neutral	$4.98B	10.38	17.23%	0.50%	11.53%	-13.75%
AN	63 Neutral	$6.22B	9.36	29.65%	―	-0.68%	-25.24%
KMX	62 Neutral	$11.65B	25.08	7.52%	―	-2.46%	-6.19%
Sector *	59 Neutral	$11.18B	10.04	-1.58%	3.96%	1.31%	-16.97%

* Consumer Cyclical Sector Average

Performance Comparison

KMX

CarMax

73.76

-9.11

-10.99%

ABG

Asbury

215.63

-9.19

-4.09%

AutoNation

158.00

-1.03

-0.65%

GPI

Group 1 Automotive

384.63

107.37

38.73%

LAD

Lithia Motors

279.69

2.52

0.91%

PAG

Penske Automotive Group

140.51

-8.24

-5.54%

CarMax Earnings Call Summary

Earnings Call Date: Dec 19, 2024 | % Change Since: -9.41% | Next Earnings Date: Apr 10, 2025

Earnings Call Sentiment Positive

CarMax demonstrated strong financial performance and growth across key segments, with significant EPS growth and improvements in unit volumes and margins. However, the decline in average selling prices and challenges in lower-income consumer segments present some concerns.

Highlights

Positive Trends and Robust EPS Growth

Retail, wholesale, and CAF all posted year-over-year gains. Third quarter EPS grew by 56% versus the previous year, reflecting solid execution and cost efficiencies.

Growth in Unit Volumes and Margins

Retail unit sales increased by 5.4%, and wholesale unit sales rose by 6.3% year-over-year. Retail gross profit per used unit increased to $2,306, and wholesale gross profit per unit rose to $1,015.

SG&A Leverage and Cost Efficiencies

SG&A expenses were up only 3%, while total gross profit increased by 11%. SG&A leveraged by 640 basis points due to growth in gross profit and expense efficiency actions.

Increase in Online Transactions

Approximately 32% of total revenue came from online transactions, a 1% increase from last year.

CarMax Auto Finance (CAF) Income Growth

CAF income was $160 million, up 8% from the same quarter last year, with a net interest margin increase of 35 basis points year-over-year.

Lowlights

Decline in Average Selling Prices

Average selling price for retail vehicles declined by approximately $1,100 per unit or 4% year-over-year. Wholesale vehicle average selling prices also declined by about $500 per unit or 6%.

Provision for Loan Losses and Reserve Levels

The provision for loan losses was $73 million, resulting in a reserve balance of $479 million, reflecting a cautious approach to future lifetime losses.

Challenges in Consumer Segments

Consumers making less than $3,000 monthly are still half of what they used to be for CarMax, indicating ongoing struggles for lower-income segments.

Company Guidance

During the third quarter of fiscal year 2025, CarMax reported robust financial results, demonstrating the strength of its diversified business model. The company achieved total sales of $6.2 billion, marking a 1% increase compared to the previous year, primarily driven by higher unit volumes. This growth was complemented by a 5.4% rise in total retail unit sales and a 6.3% increase in wholesale unit sales. CarMax also reported significant gains in gross profits, with retail gross profit per used unit reaching $2,306, slightly up from $2,277 the prior year, and wholesale gross profit per unit rising to $1,015 from $961. The company's CarMax Auto Finance (CAF) segment generated $160 million in income, up 8% year-over-year, supported by a net interest margin of 6.2%. Additionally, the SG&A expenses were effectively managed, leading to a 3% increase, which was significantly leveraged by the gross profit growth. Overall, CarMax's strategic focus on omnichannel capabilities and cost efficiencies facilitated a double-digit EPS growth of 56%, amounting to $0.81 per diluted share.

CarMax Corporate Events

Executive/Board ChangesShareholder Meetings

CarMax Board Changes: Director Departure and Bylaws Amendment

Neutral

Jan 31, 2025

On January 28, 2025, CarMax board member Ronald E. Blaylock announced he would not seek reelection at the company’s 2025 annual meeting, a decision unrelated to any disagreement with the company. Additionally, the CarMax Board amended the company’s bylaws to allow shareholders owning at least 20% of common stock to call special meetings, potentially increasing shareholder influence in company decisions.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.