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Bull of the Day: CarMax (KMX)

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Headquartered in Richmond, Virginia, CarMax Inc. (KMX - Free Report) is a retailer that specializes in used cars, selling vehicles through on-site wholesale auctions and offering new vehicles under franchise agreements.

The company also operates car superstores, providing customers with a range of other related products and services like the appraisal and purchase of vehicles directly from consumers, the sale of extended service plans, guaranteed asset protection, and accessories and vehicle repair services.

Shares Pop on Q1 Results

Last month, Zacks Rank #1 (Strong Buy) CarMax reported impressive Q1 numbers across the board. Shares popped nearly 8% as a result, suggesting analysts were impressed by the car retailer’s performance.

Both its top and bottom line easily beat the Zacks Consensus estimate, with earnings of $1.33 per share coming in well above our estimate of $1.21 per share. EPS increased 17.7% year-over-year.

Net sales and operating revenues grew 5.5% year-over-year to $4.79 billion, also beating our consensus estimate. Total used unit sales rose 1.6% while total wholesale unit sales increased almost 10%; however, comparable store used unit sales fell 2.3% because of lower store traffic and tough comparison versus as it “lapped its strongest prior year performance.”

Total gross profit increased 1.9% to $661.3 million and opened three new stores in Q1.

Strong Earnings Outlook

For KMX, its bottom line is trending upward for the foreseeable future.

Earnings are expected to grow over 23% for the current quarter, and 5 analysts have revised their estimates higher over the past two months compared to none lower.

Current fiscal year figures are looking pretty great, with 7 upwards estimates in the last 60 days. The Zacks Consensus estimate trend has jumped 26 cents from $4.34 per share to $4.60 per share.

Next year is looking good as well, with earnings expected to grow about 9.8%; the consensus has increased 22 cents in the past two months.

What’s Next for KMX?

Shares of CarMax have gained almost 20% in the past one-year period and are up over 23% in the last three months, no doubt thanks to its Q1 performance. In comparison, the S&P 500 has gained over 13% in the past 12 months.

CarMax, Inc. Price and Consensus

CarMax, Inc. Price and Consensus | CarMax, Inc. Quote

KMX is currently trading at a forward P/E of 16.9X.

Its industry, Automotive-Retail and Wholesale Parts, has been a solid performer in 2018, and has gained about 17.7% year-to-date; the group sits in the top 23% of all industries ranked by the Zacks Industry Rank. KMX, though, is one of the top performers, especially when compared to industry peers like U.S. Auto Parts Network Inc. .

Taking into account its impressive industry standing, as well as its expected earnings growth, CarMax could be an exciting opportunity for investors looking to get in to the broad automotive space right now.

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With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

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