Back to top

Analyst Blog

On Jun 27, we maintained our Neutral recommendation on CarMax Inc. (KMX - Analyst Report) based on its continuous focus in the used-vehicle market and its aggressive store expansion strategy together with better performance in the first quarter of fiscal 2014. However, we are concerned about lower margins from used vehicle sales owing to the aggressive incentives offered by manufacturers and dealers.

Why the Reiteration?

On Jun 21, CarMax posted a 23.1% increase in earnings per share to 64 cents in the first quarter of fiscal 2014 ended May 31, 2013, from 52 cents a year ago. Reported earnings also exceeded the Zacks Consensus Estimate by 7 cents.

Net sales and operating revenues in the quarter rose 19.3% to $3.3 billion, topping the Zacks Consensus Estimate of $3.1 billion. The year-over-year improvement in revenues was due to increase in used vehicle sales and wholesale vehicle sale.

Following the release of the first quarter results, the Zacks Consensus Estimate for fiscal 2014 increased 3.4% to $2.15 per share. The Zacks Consensus Estimate for fiscal 2015 also went up 3.0% to $2.37 per share.

CarMax focuses more on the used-car market, which helps to outgrow its peers. CarMax is one of the strongest operators with leading liquidity and profitability ratios among other automotive retail companies including Penske Automotive Group Inc. (PAG - Analyst Report) and AutoNation Inc. (AN - Analyst Report).

CarMax undertook aggressive store expansion policy based on the improving sales environment in the U.S. During the first quarter of fiscal 2014, CarMax opened three stores, penetrating the Harrisonburg, Va. market and the Savannah and Columbus markets in Ga. At the end of the quarter, CarMax opened the fifth store in the Houston, Texas. The company also plans to open 10 and 15 superstores in the following two fiscal years.

However, we are concerned about the sluggish sales environment for new vehicles and particularly for domestic cars. Used vehicle sales margins were adversely affected by incentives and attractive pricing offered by the manufacturers and dealers for the new cars. High used car inventory is also putting pressure on prices, thus affecting the margins. In addition, the used-car market in the U.S. is highly fragmented and competitive.

Other Stocks to Look For

Visteon Corp. (VC - Snapshot Report) is performing well in the industry where CarMax operates. Visteon is a Zacks Rank #1 (Strong Buy) stock.
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
UNITED THER… UTHR 117.83 +28.51%
TRIQUINT SE… TQNT 20.67 +6.52%
VASCO DATA… VDSI 14.77 +4.68%
BANCO DO BR… BDORY 15.53 +3.95%
STRATTEC SE… STRT 80.24 +3.00%