KMX: Future Returns Will Depend On Credit Normalization Amid Execution Concerns

Analysts have trimmed their CarMax fair value estimate by about $1.50 per share to roughly $38, reflecting a series of reduced Street price targets in the $40s and $50s as concerns mount over slowing unit growth, weaker margins, and uncertainty around the company’s strategic execution.

Analyst Commentary

Street research on CarMax has shifted decisively toward caution, but views are not uniformly negative. Recent reports highlight a widening gap between concerns over near term execution risk and lingering confidence in the company’s long term strategic positioning and brand value.

Bullish Takeaways

• Bullish analysts argue that recent earnings volatility and negative unit comps reflect timing and one time factors rather than a structural impairment of the business. This supports the case for eventual recovery in volumes and earnings power.
• Some see upside to fair value if CarMax can stabilize credit performance, as current loan losses are viewed as concentrated in older vintages. This implies potential margin normalization and multiple expansion over time.
• Despite target cuts, a subset of the Street maintains positive ratings, citing CarMax’s scale, brand and omnichannel platform as competitive advantages that could reassert themselves once macro and inventory headwinds ease.
• Optimistic voices frame the current multiple compression as an opportunity for re rating if management demonstrates clearer progress on unit growth, retail GPU and digital execution over the next few quarters.

Bearish Takeaways

• Bearish analysts highlight repeated Q2 shortfalls across key metrics as evidence that the path back to sustained comp and earnings growth is less visible. This is seen as warranting lower valuation multiples and more conservative long term sales assumptions.
• There is growing concern that CarMax’s strategy lacks a clearly articulated plan to unlock underlying asset value, with risks of continued deterioration in year over year unit trends and retail GPU weighing on both near term and structural growth expectations.
• Several research updates point to competitive share pressure, including from digital first rivals, and to supply constraints that could limit CarMax’s ability to recapture lost volumes. These issues are cited as justifying reduced price targets into the mid 40s or below.
• Uncertainty around credit quality, higher loss provisions and the potential for further macro softness in used vehicle demand are leading more cautious analysts to favor a wait and see approach, with expectations for limited upside versus downside over the next 12 months.

What's in the News

• CarMax announced leadership changes, with board member and veteran retail executive David McCreight appointed Interim President and CEO effective December 1, 2025, as longtime CEO Bill Nash steps down from his role and the board (Corporate filing).
• The company issued third quarter 2025 guidance calling for an 8% to 12% decline in comparable used unit sales and net earnings per diluted share of $0.18 to $0.36, including $0.09 of non recurring restructuring related expenses (Corporate guidance).
• CarMax faces multiple securities class action lawsuits alleging the company overstated growth prospects that were temporarily boosted by tariff related buying, with lead plaintiff motions due by January 2, 2026 (Legal filings).
• The company expanded its customer offering with nationwide at home pickup for vehicle appraisals and the launch of Offer Watch, a tool that tracks a car’s value over time and supports more flexible sell on your terms options (Company announcement).
• CarMax was removed from the S&P 500 and several related S&P 500 style and sector indexes and concurrently added to the S&P 600 and Russell Small Cap Comp Value Index, marking a notable shift in its index representation (Index provider updates).

Valuation Changes

• Fair Value Estimate has been reduced slightly from approximately $39.77 to $38.31 per share, reflecting a modestly lower long term earnings outlook.
• Discount Rate remains unchanged at 12.5%, indicating no shift in the assumed risk profile or cost of capital for CarMax.
• Revenue Growth expectations have improved, moving from a steeper projected decline of about -2.1% to a milder decline of roughly -0.8%, suggesting less severe top line pressure than previously modeled.
• Net Profit Margin forecast has edged lower from roughly 3.1% to about 2.8%, pointing to slightly weaker anticipated profitability over the forecast period.
• Future P/E multiple has been trimmed modestly from about 8.8x to 8.3x, signaling a small contraction in the valuation investors are expected to pay for CarMax’s forward earnings.