CarMax Drops 8% As Covid-19 Hits Same-Store Sales; Top Analyst Says Buy

Shares of CarMax sank 8.1% on Tuesday after the used-car retailer surprised the Street with a decline in third-quarter same-store sales due to the COVID-19 impact. Meanwhile, total revenue and EPS came ahead of analysts’ estimates.

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CarMax’s (KMX) same-store used unit sales fell 0.8% in the quarter versus the 11% increase posted during the same period year ago quarter. Analysts had been looking for growth of 3.5% during the reported quarter.

The company said, “For the first part of the quarter, we achieved mid-single digit comparable store sales growth, continuing the positive momentum from the second quarter. However, demand softened and sales trended down in the latter part of the quarter,” primarily due to the adverse impact of COVID-19. (See KMX stock analysis on TipRanks)

Nevertheless, CarMax’s 3Q earnings of $1.42 per share came ahead of analysts’ estimates of $1.13 and increased 36.5% year-over-year. Its revenues of $5.2 billion topped the consensus estimate of about $5 billion and increased 8.2% year-over-year, reflecting a growth of 4.5% in total used sales. Moreover, its wholesale vehicle sales jumped by 35.6%.

CarMax’s CEO Bill Nash said, “Despite the near-term market challenges due to the trajectory of the pandemic, our fundamentals remain robust and reflect the strength of our diversified business model spanning retail, wholesale, and auto finance. This strength, combined with our emerging omni-channel experience, is a unique advantage in the used car industry that firmly positions us to continue growing our market share while creating shareholder value over the long-term.”

Following the results, Oppenheimer analyst Brian Nagel maintained a Buy rating and a price target of $130 (40.8% upside potential) on the stock. Nagel said, “KMX continues to transform its once traditional retail business into a digitally driven omni-channel model.” The analyst noted that, “underlying online trends at the company continue to strengthen.”

Overall, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 7 Buys, 1 Hold and 1 Sell. The average price target stands at $120.33 and implies upside potential of about 30.3% to current levels. Shares have risen by 5.3% year-to-date.