Current used car market favors AutoNation over CarMax, says BofA

BofA says recent channel checks indicate that the sourcing environment for used cars is still challenging, especially for late model used vehicles, and the firm expects this dynamic to persist through 2025 and beyond. Unlike franchised dealers, CarMax (KMX) has limited offsets to the tight used market and in addition to weak unit growth, CarMax faces inflated costs as volume leverage fails to materialize, the analyst tells investors. Conversely, the firm remains constructive on the franchised dealers and calls AutoNation (AN) its top pick within the group as it believes the company should benefit from an improving new vehicle sales cycle driven by pent up demand and continue to produce strong cash flow that is re-deployed towards accretive share buybacks. The firm maintains a Buy on AutoNation and Underperform rating on CarMax.