KMX: Future Recovery Will Hinge On Loan Loss And Credit Normalization

Analysts have trimmed their CarMax price target slightly, reflecting a modest reset in fair value to about $40 per share as they factor in weaker unit trends, persistent credit headwinds, and increased uncertainty around the company’s strategic execution.

Analyst Commentary

Research coverage around CarMax has tilted more cautious in recent weeks, with multiple firms cutting price targets and downgrading ratings as they recalibrate expectations for growth, margins, and credit performance. While some see a valuable franchise that could recover with improved execution and a more supportive macro backdrop, others believe the risk reward is skewed to the downside given weaker unit trends and uncertainty around management's strategy.

Against this backdrop, views are coalescing around two main camps: those emphasizing upside optionality if CarMax stabilizes comps and credit, and those focusing on the prospect of a longer, more structural reset in earnings power and valuation.

Bullish Takeaways

• Bullish analysts argue that the recent derating has largely priced in near term earnings pressure, leaving room for multiple expansion if unit growth stabilizes and CarMax executes more consistently on its omnichannel strategy.
• Some bulls still see CarMax as a high quality asset with durable brand equity and long term share gain potential, particularly if used vehicle demand normalizes and digital investments start to translate into better conversion and GPU.
• Where targets remain in the 50 dollar to 60 dollar range, upside cases assume that current credit headwinds are concentrated in specific vintages, with earnings power recovering as loss rates normalize and CAF profitability improves.
• More constructive views highlight that, relative to pure play online competitors, CarMax retains balance sheet flexibility and scale advantages that could support renewed growth once macro conditions and inventory availability become more favorable.

Bearish Takeaways

• Bearish analysts are increasingly focused on the lack of a clear, measurable plan to re accelerate unit growth, warning that continued negative comps and retail GPU pressure could justify a lower structural earnings base and compressed valuation multiples.
• Several cautious voices see rising competitive intensity, including potential share losses to online first platforms, as a key risk that could keep returns under pressure and limit the potential for a quick rebound in the stock.
• Downward revisions to price targets into the 40 dollar range reflect concerns that management execution missteps, together with persistent credit and macro headwinds, may extend the timeline for any sustained recovery in profitability.
• Some of the most conservative views, including an Underweight initiation with a sub 30 dollar target, frame CarMax as entering a new downside phase in which uncertainty around strategy, credit outcomes, and demand visibility all argue for a discounted valuation.

What's in the News

• CarMax issued cautious third quarter guidance, projecting an 8% to 12% decline in comparable store used unit sales and earnings per share of $0.18 to $0.36, including non recurring costs tied to leadership changes and workforce reductions (Corporate guidance).
• Longtime CEO Bill Nash will step down. Board member and veteran retail executive David McCreight has been appointed Interim President and Chief Executive Officer effective December 1, 2025 (Executive changes).
• Multiple index providers have shifted CarMax out of large cap benchmarks. The company was dropped from the S&P 500 and related S&P 500 industry and style indices and the FTSE All World Index, and was added to the S&P 600 small cap and related sector indices (Index constituent changes).
• CarMax faces mounting securities litigation, with class action lawsuits alleging the company overstated growth prospects and misrepresented the durability of demand trends, and investor deadlines set for early 2026 to seek lead plaintiff status (Lawsuits and legal issues).
• The company continues investing in its omnichannel model, launching nationwide at home pickup for vehicle appraisals and sales and rolling out Offer Watch, a digital tool that tracks a car’s value over time to help customers choose when to sell (Product related announcements).

Valuation Changes

• Fair Value: nudged down slightly from approximately $39.83 to $39.77 per share, implying a modestly lower intrinsic value estimate.
• Discount Rate: unchanged at 12.5%, indicating no shift in the assumed risk profile or required return.
• Revenue Growth: essentially flat versus prior assumptions, with the projected top-line decline stable at about negative 2.12% year over year.
• Net Profit Margin: effectively unchanged, holding near 3.09%, signaling a steady view on long-term profitability.
• Future P/E: edged lower from roughly 8.79x to 8.77x, reflecting a slightly more conservative multiple on forward earnings.