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CarMax Forges Ahead With Store Expansion, Expense Woes Stay

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We issued an updated research report on CarMax, Inc. (KMX - Free Report) on Dec 27.

CarMax operates as a specialty retailer of used and new vehicles. The Richmond, VA-based company pursues an aggressive store expansion strategy. During third-quarter fiscal 2019, the company opened four stores in new television markets of Wilmington, NC; Lafayette, LA; Corpus Christi, TX; and Shreveport, LA. Additionally, the company is investing in its digital platform to drive traffic.

CarMax focuses more on the used-car market. The company holds a competitive advantage in used vehicle retailing due to high degree of customer satisfaction on account of low prices and a customer-friendly sales process.

In the third quarter of fiscal 2019, CarMax posted earnings per share of $1.09, up 34.6% from a year ago. Earnings surpassed the Zacks Consensus Estimate of $1.01. Revenues however slightly missed the Zacks Consensus Estimate but improved year over year.
 
Meanwhile, high selling, general and administrative expense is a serious concern. In the first nine months of fiscal 2019, CarMax’s selling, general and administrative expenses rose roughly 7.7% year over year to $1.3 billion. This can be mainly attributed to expenses pertaining to store openings. Increasing investments in technologies and digital platforms, and escalating compensation expenses are adding to the expenses.

CarMax currently has a Zacks Rank #3 (Hold). Over the past three months, shares of the company have underperformed the industry it belongs to. Over this time frame, the stock has plunged 14.2%, compared with the industry’s fall of 1.9%.

Over the past seven days, the Zacks Consensus Estimate for current-quarter earnings declined 0.9% to $1.05 while the mark for current-year earnings moved 1.1% north to $4.68.

A few better-ranked stocks in the auto space are Allison Transmission Holdings, Inc. (ALSN - Free Report) , Fox Factory Holding Corp. (FOXF - Free Report) and CarGurus, Inc. (CARG - Free Report) . While Allison Transmission and Fox Factory currently sport a Zacks Rank #1 (Strong Buy), CarGurus carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Allison Transmission has an expected long-term growth rate of 10%. Over the past six months, shares of the company have increased 2.3%.

Fox Factory has an expected long-term growth rate of 17.9%. Over the past six months, the stock has climbed 15.6%.

CarGurus has an expected long-term growth rate of 5%. Over the past year, shares of the company have rallied 3.8%.

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