RBC Raises CarMax Price Target, Says Headwinds Will Ease
Used car retailer CarMax, Inc (NYSE: KMX) reported weakness in its past few quarters, but any headwinds should now ease moving forward, according to RBC Capital Markets.
RBC's Scot Ciccarelli maintains an Outperform rating on CarMax with a price target lifted from $86 to $92.
Ciccarelli said recent weakness in CarMax's earnings can be attributed to three factors: elevated prices in used cars, unfavorable omni-channel capabilities versus its peers and struggles with "value" rankings on marketplace windows.
All three factors will ease moving forward, the analyst wrote in a note.
First, depreciation patterns in used autos are likely to normalize back to historical norms which will create a better environment for CarMax as it offers consumers better value propositions versus buying new.
Second, CarMax introduced new omni-channel capabilities in test markets which posted comps in the double-digit range in the fourth quarter. The company plans on expanding its omni-channel capabilities to Florida in the near term with the objective of expanding to most of its major markets by February 2020.
Third, CarMax typically has a small number of vehicles for sale that rank as a great deal or good deal in third-party marketplace platforms, like CarGurus (NASDAQ: CARG). The analyst said this headwind, for the most part, remains "largely unaddressed" but should improve over time as the new omni-channel capabilities could offer a solution to improving its offerings versus Carvana (NYSE: CVNA).
Shares of CarMax closed Wednesday at $83.49.
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