KMX: Recovery Will Depend On Resolution Of Loan Loss Headwinds

CarMax's analyst price target has been reduced significantly from approximately $55 to $40 per share, as analysts cite weaker revenue growth, margin compression, and persistent headwinds in retail trends and credit quality.

Analyst Commentary

Recent analyst coverage on CarMax reflects a divided outlook in the wake of disappointing financial results and evolving market dynamics. While some see opportunities for recovery and growth, others express heightened caution amid operational and industry-wide challenges.

• Bullish analysts highlight the company's historical resilience and potential for shareholder returns even in a mixed sector environment.
• Several believe that the challenges negatively impacting quarterly results could be temporary, pointing to the possibility of a rebound in unit growth if certain intra-quarter issues are resolved.
• Both digital platform innovation and diversification in auto auctions are viewed as positive catalysts for long-term growth potential.
• There is recognition that some negative trends, such as elevated loan losses, may be largely confined to older loan vintages. This could limit risk going forward.

• Bearish analysts express concern that recent earnings disappointments indicate persistent margin pressure and greater structural headwinds across retail channels and credit quality.
• Uncertainty surrounding CarMax’s long-term growth strategy and execution is viewed as a major risk, with skepticism over management’s ability to restore sustainable same-store sales and earnings growth.
• Valuation reductions reflect a consensus that near-term visibility remains limited due to supply headwinds, competitive threats from digital disruptors, and the potential for continued share loss.
• There is also increasing apprehension about further downside risk. Several are forecasting declines in both unit sales and retail gross profit per unit, coupled with a lack of clear catalysts to unlock value.

What's in the News

• CarMax, Inc. announced the grand opening of its first Arkansas store. This brings its total to 255 locations across 42 states and expands its omni-channel customer experience (Key Developments).
• The company has introduced at-home pickup for car sellers and launched Offer Watch. This feature allows customers to track their car's value over time for more informed selling decisions (Key Developments).
• Significant index changes have occurred. CarMax was dropped from the S&P 500 and several related indices, but added to the S&P 600 and S&P 1000 (Key Developments).
• Leadership changes were announced, with David McCreight named Interim President and CEO following the departure of Bill Nash, effective December 1, 2025 (Key Developments).
• Multiple class action lawsuits have been filed accusing CarMax of making misleading statements regarding growth prospects. The investor deadline to file as lead plaintiff is January 2, 2026 (Key Developments).

Valuation Changes

• Fair Value Estimate: Lowered significantly from $54.64 to $39.83, reflecting more conservative expectations.
• Discount Rate: Remains stable at 12.5%, indicating no change in perceived risk adjustment.
• Revenue Growth: Projected growth has deteriorated further, declining from negative 0.48% to negative 2.12% year-over-year.
• Net Profit Margin: Reduced modestly, moving from 3.44% to 3.09%.
• Future Price-to-Earnings (P/E) Ratio: Lowered from 10.29 times to 8.79 times, suggesting diminished profitability expectations or valuation compression.