CarMax’s Quarterly Profit Beats Analysts’ Expectations; Shares Tank 7%

CarMax, America’s largest used-car retailer, posted better-than-expected fiscal 4Q (ended Feb. 28) earnings driven by top-line growth. Meanwhile, revenues for the quarter missed analysts’ expectations. Shares plunged 7% to close at $123.31 on April 1.

CarMax’s (KMX) 4Q earnings dipped 2.3% to $1.27 per share compared to $1.30 reported in the prior-year period but beat analysts’ expectations of $1.26. Net sales and operating revenues of $5.16 billion missed the Street’s estimates of $5.17 billion but advanced 4.1% from the year-ago period.

The company’s total used unit sales and unit sales in comparable stores declined 0.9% and 2.3%, respectively, while wholesale units dropped 1.2% year-over-year. Sales were impacted by the delay in tax refunds and severe weather. (See CarMax stock analysis on TipRanks)

Additionally, CarMax inked a cash-and-stock deal to acquire Edmunds, an online guide for car shoppers from research to purchase, for an enterprise value of $404 million. In Jan. 2020, CarMax acquired a minority stake in Edmunds by investing $50 million. The company will acquire the remaining shares of Edmunds and the purchase price includes CarMax’s initial investment. CarMax expects the addition of Edmunds’ net income to be immaterial to the company’s earnings in fiscal 2022.

CarMax CEO Bill Nash said, “Our partnership to date has proven to be an outstanding combination as we’ve developed innovative products, including an online instant appraisal offer on both and We look forward to collaborating on new products and initiatives leveraging Edmunds’ industry-leading content and technology expertise to serve both CarMax and Edmunds’ customers.”

Following the 4Q results, Oppenheimer analyst Brian Nagel maintained a Buy rating and a price target of $130.

Nagel said, “Overall, we look upon underlying trends at KMX and commentary from management as decidedly constructive. We see today’s modest pullback in KMX shares as reactive in nature and as making for a buying opportunity.”

CarMax shares have exploded 145.6% over the past year, while the stock still scores a Strong Buy consensus rating based on 4 Buys versus 1 Hold. That’s alongside an average analyst price target of $135 which implies 9.5% upside potential from current levels.

Furthermore, TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on CarMax, with 3.1% of investors increasing their exposure to KMX stock over the past 30 days.

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