When it comes to used cars in the US, CarMax Inc. New York Stock Exchange: KMX stands out as the largest used car dealer. The auto, tire and truck giant operates more than 245 physical dealerships in the country and has popularized the concept of “no-haggle” pricing for used vehicles. The company buys, sells, services and finances vehicles through its CarMax Auto Finance division, which has more than $8 billion in receivables annually.
The auto industry has been on a wild roller coaster ride since 2019 as it experienced an unprecedented surge during the pandemic and a painful normalization after it. However, CarMax is starting to regain growth after nine straight quarterly year-over-year revenue declines. The company also reported its biggest earnings per share (EPS) increase since the first quarter of 2024.
CarMax has many competitors, including a rival giant. AutoNation Inc. New York Stock Exchange: AN To “Karvana” company New York Stock Exchange: CVNAlocal dealerships and online sites such as Cars.com New York Stock Exchange: CARS And CarGurus Inc. NASDAQ: KARG.
Q3 Marks begins its comeback journey
CarMax today
(As of 12/31/2024 5:32 PM ET)
- 52 week range
- $65.83
▼
$91.25
- P/E ratio
- 30.74
- Target price
- $85.17
Investors received an upbeat earnings report for the third quarter of 2024, with CarMax earning 81 cents per share, well above the consensus estimate of 19 cents. Revenue rose 1.2% YoY to $6.22 billion, also well ahead of the consensus estimate of $6.15 billion. The positive revenue growth came after nine consecutive quarters of YoY decline. It also beat analysts’ expectations for another year-on-year decline in the quarter.
CarMax Auto Finance (CAF) earnings rose 7.6% YoY to $159.9 million, driven by net interest margin and average accounts receivables managed. The company repurchased $114.8 million of shares during the quarter. The provision for credit losses stabilized in the third quarter to $74 million, still higher than a year ago at $68 million. This is an improvement from the previous second quarter provision of $113 million, compared to $90 million in the second quarter of 2023.
Stable profits and positive revenue growth were noted
Total retail sales of used vehicles increased 5.4% YoY to 184,243 units. Comparable-store sales of used units increased 4.3% year-over-year. Total retail used unit sales increased 1.2% year-over-year, driven by an increase in the number of retail used units sold and partially offset by a 3.9%, or approximately $1,100, decline in average retail selling price US per unit. Retail gross profit increased 1% to an average of $2,306 per unit. Wholesale Gross profit increased 5% to an average of $1,015 per unit.. Extended protection plan (EPP) margins increased $53 per unit to $573. The service margin increased by $60 per retail unit.
CarMax purchased 270,000 vehicles from consumers and dealers, up 7.9% year over year. They bought 237 thousand cars from consumers, an increase of 4.1%. They bought 33,000 cars from dealers, which is 46.7% more than the same period last year. Total online sales grew 32% YoY, compared with 31% growth last year. This also includes all wholesale auction sales, which were virtual and accounted for 19% of total revenue in the third quarter.
CarMax CEO Bill Nash commented, “I am pleased with the positive momentum we are delivering through our diversified business model. Our strong execution and more stable vehicle valuation environment enabled us to deliver robust EPS growth driven by increased sales and purchase volumes, stable earnings, CAF earnings growth and continued SG&A management.”
KMX shares are in an ascending triangle shape
An ascending triangle consists of a flat-topped upper resistance line converging with an ascending (rising) lower support line. A breakout occurs when a stock breaks the upper trend line. If the stock falls below the lower ascending trend line, then the pattern does not work because a breakout is forming.
KMX formed flat-top upper trendline resistance at $87.57, matching the rising lower trendline that formed at the $69.95 swing low. Although the lower trendline has been tested and passed three times, the daily pegged VWAP has consistently held support, which currently sits at $80.18. The upper trendline with a flat top almost broke out after the profit until a gap and trap ensued, sending the KMX back into the ascending triangle range. The daily flat VWAP is $80.18. The daily RSI is approaching the 52 band. Fibonacci (Fibonacci retracement support levels are located at $79.67, $74.38, $70.62 and $65.83.
KMX’s average target price is $85.17which implies a growth potential of 1.26%. and his highest analyst price target is at US$105. It has six analyst “buy” ratings, five “hold” ratings and three “sell” ratings. The stock’s short interest is 8.61%.
Actionable Option Strategies: Bullish investors may consider writing cash-backed puts at Fibonacci retracement support levels to buy the dip. If the stock is distributed, then writing a covered call at high Fibonacci levels implements a wheel strategy to generate income since there are no dividends.
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