CarMax shares get price target boost following Q2 results By Investing.com

On Friday, Evercore ISI updated its outlook on CarMax (NYSE:), increasing the price target to $79.00, up from the previous $76.00, while maintaining an In Line rating. The firm’s update followed CarMax’s second-quarter results, which indicated a stabilization in market share and retail profit growth.

CarMax reported a 5% growth in retail used unit sales for the period of June to August, keeping pace with the industry’s performance. This growth was attributed to the normalization of depreciation and advantages gained from software disruptions experienced by competing franchised dealers.

CarMax’s retail profitability also saw an improvement, rising from $0.11 in the second quarter of fiscal year 2023 to $0.30 in the same quarter of fiscal year 2024. Despite these positive developments, Evercore ISI expressed concerns over higher loan losses, suggesting that CarMax is not completely shielded from the broader pressures affecting the industry. These losses could potentially lead to tighter credit conditions and profit challenges if consumer financial strains continue.

In light of these results, Evercore ISI has adjusted its earnings per share (EPS) estimates for CarMax for fiscal years 2024 and 2025 by approximately 1%, setting them at $3.05 and $3.60, respectively. The firm anticipates a 2.5% comparable sales growth in the third quarter, based on more resilient September results than previously expected and second-quarter performance that exceeded estimates.

The revised base case valuation of $79 considers approximately 17 times the normalized EPS of around $5.50, discounted back two years. This valuation reflects expectations for gradual market share stabilization and improved underlying profitability, despite projections of below-trend EPS power into fiscal year 2025.

In other recent news, CFRA analysts maintained a Buy rating on CarMax with a steady price target of $100, based on projected P/E of 24.4x for fiscal year 2026. Despite a slight reduction in the FY 2025 earnings per share estimate, the FY 2026 estimate remains unchanged at $4.10. CarMax reported earnings for the August quarter at $0.85 per share, a 13% increase from the same period the previous year, albeit slightly below consensus estimates.

The company’s net sales were marginally down by 0.9% to $7.01 billion, exceeding the consensus by $190 million. CarMax saw an expansion in gross margin by 100 basis points to 10.8%, slightly above the consensus. Despite industry-wide challenges, CarMax reported a 1% decrease in total sales, amounting to $7 billion, but experienced a 5.1% increase in retail unit sales in the second quarter of 2025.

CarMax also conducted its first non-prime asset-backed securities transaction and is testing new credit scoring models. The company remains optimistic about its growth prospects, with plans to centralize logistics operations and test an AI knowledge management system.

InvestingPro Insights

As CarMax (NYSE:KMX) navigates the dynamic automotive retail market, recent data from InvestingPro offers additional context to Evercore ISI’s updated outlook. Analysts have flagged concerns with CarMax, noting a predicted sales decline for the current year and weak gross profit margins, which could affect the company’s financial health. Despite these challenges, CarMax remains a prominent player in the Specialty Retail industry, with liquid assets surpassing short-term obligations, indicating a strong liquidity position.

From a valuation perspective, CarMax is currently trading at a high EBITDA valuation multiple, with a P/E ratio of 30.54 and an adjusted P/E ratio for the last twelve months as of Q2 2025 at 29.24. This suggests that the market may be pricing in expectations for future growth or stability. The company’s revenue has seen a slight decline of 3.03% over the last twelve months, as of Q2 2025, which aligns with the concerns raised by analysts regarding a potential sales decline. Moreover, CarMax does not pay a dividend, which may influence investors looking for income-generating investments.

For those seeking more comprehensive analysis, there are additional InvestingPro Tips available, which delve deeper into CarMax’s financials and industry position. Access to these insights can further inform investment decisions in the context of the automotive retail sector’s current landscape.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.