Tags: Carmax | KMX | used | cars

Carmax Shares Dinged by Used Car Drought

By    |   Monday, 14 Nov 2011 01:07 PM

For used car giants Carmax (KMX) the weakening global economy has meant more demand for its higher quality vehicles, which boosted its bottom line. But investors worry that boom is going to turn into an inevitable drought in used car supply.

Until now there has been enough supply to offer profit to everyone, from the street-corner dealerships that offer high mileage cars to buyers with poor credit all the way up to the gently used cars offered by Carmax.

But as the weak economy drags on, fewer new cars are bought that will eventually go into the Carmax supply chain. The company can secure lower-grade cars that it then auctions off to dealerships further down the food chain, but Carmax itself is running out of cars. Or so the analysts say.

In early October, JP Morgan lowered its price target to $29 from $34 but kept its neutral rating on shares. “On balance, while we are encouraged that KMX will not be scaling down its future investments, we remain cautionary toward the remainder of the year and FY2013 unless we begin to see any material improvement in macro catalysts," its analysts wrote in a note to clients.

Around the same time, Deutsch Bank kept its hold rating and $33 price target, saying that “the used vehicle market is expected to face a dwindling supply of younger used vehicles.” Credit Suisse follow up by cutting its outperform rating on KMX to neutral.

Looking up

A few weeks later, Oppenheimer shifted its tone, holding on to its $38 price target and outperform rating. What changed? “Concerns over sluggish used car sales at KMX have weighed upon shares lately. We believe the incremental outsized top-line weakness at KMX over the past few months reflects primarily transitory factors. Although headwinds persist, data suggest that the environment for used car sales at KMX is on the mend,” analysts wrote.

The economic outlook remains on the darker side of grey, if not yet black, but shares in Carmax could strengthen to match the company’s trajectory. Even if there aren’t higher-standard vehicles available, Carmax is still in the best position, considering its 111 stores across more than half a dozen states, to sell what’s out there.

In September, KMX reported sales and operating revenues increased 11 percent to $2.59 billion from $2.34 billion in its fiscal second quarter. Net income increased to $111.9 million, or 49 cents per diluted share, up from $107.9 million, or 48 cents per diluted share, earned in the second quarter of fiscal 2011.

Carmax next reports on Dec. 21.

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
Companies
For used car giants Carmax (KMX) the weakening global economy has meant more demand for its higher quality vehicles, which boosted its bottom line. But investors worry that boom is going to turn into an inevitable drought in used car supply. Until now there has been enough...
Carmax,KMX,used,cars
427
2011-07-14
Monday, 14 Nov 2011 01:07 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved