CarMax will outperform as growth turns and market share improves, analysts say

investing.com:

Shares of used car retailer CarMax (NYSE:KMX) climbed after research firm Wedbush Securities upgraded the stock from Neutral to Outperform. Wedbush also raised its price target from $85 to $90, implying upside of 17% from Friday’s closing price.

CarMax is scheduled to report second quarter 2023 results on Thursday, September 28, and analysts anticipate an inflection in growth.

Wedbush analysts explained, “We are upgrading our rating on KMX from NEUTRAL to OUTPERFORM as an inflection in growth and market share performance nears and profitability continues to improve on enduring retail GPU strength and fixed cost leverage.”

CarMax underperformed the retail used car industry’s unit growth in the third quarter of last year as the company faced tough comparisons and focused on profit over unit sales, but underperformance has narrowed in 2023, they said.

“Indeed, we look for modest unit comp upside to -7.5% in F2Q (vs. consensus -8.0%), but more importantly see comps turning positive in F3Q (+3% estimate) on easing comparisons and improving industry growth trends (~ +1% forecast by Cox),” wrote the analysts.

Wedbush thinks affordability pressures will continue to constrain industry growth, especially with another tick higher in interest rates, but CarMax is viewed as being well-positioned to take market share.

Shares climbed nearly 2% following the upgrade.