Last Update 06 Dec 25

Fair value Decreased 0.16%

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.

Growth in digital sales channels and improved vehicle sourcing are expected to boost market share, revenue, and gross profit margins.
Expansion of credit spectrum lending and cost reductions aim to enhance financing income, profitability, and net margins.
Macroeconomic and competitive pressures challenge CarMax's margins and growth, with rising inventory and loan costs and uncertainties affecting profitability and strategic clarity.

Catalysts

About CarMax

Through its subsidiaries, operates as a retailer of used vehicles and related products in the United States.What are the underlying business or industry changes driving this perspective?

CarMax's growth in digital sales channels, including an increase in omnichannel sales, positions the company to expand its market share and boost revenue in the future. The ongoing enhancements to their digital tools are expected to further integrate online and in-store sales.
Expansion in the company's vehicle sourcing capabilities, particularly through dealer channels and improved consumer experience, is intended to support unit volume growth and improve gross profit margins by lowering vehicle acquisition costs.
CarMax's initiative to broaden its full credit spectrum lending capabilities through CarMax Auto Finance (CAF) is expected to increase CAF income and net interest margins over time. This initiative aims to capture more sales and improve financing income, impacting earnings positively.
The continued focus on operational efficiencies and planned cost reductions in logistics and reconditioning are expected to support stable or increased net margins and profitability as savings enhance the bottom line.
Planned investments in new store locations and reconditioning centers are intended to increase the company's physical footprint and operational capacity, driving revenue growth through expanded service capacity and higher vehicle sales.

CarMax Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming CarMax's revenue will grow by 1.3% annually over the next 3 years.
Analysts assume that profit margins will increase from 1.9% today to 3.1% in 3 years time.
Analysts expect earnings to reach $919.9 million (and earnings per share of $6.49) by about September 2028, up from $558.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $532 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from 16.5x today. This future PE is lower than the current PE for the US Specialty Retail industry at 18.7x.
Analysts expect the number of shares outstanding to decline by 3.13% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

CarMax Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

CarMax reported a decline in wholesale gross profit per unit, which can raise concerns about maintaining or growing gross margins if this trend continues.
The competitive pressure in the vehicle sourcing arena, especially with significant gains in dealer-sourced inventory, introduces risks to inventory acquisition costs, and could potentially compress gross profit margins.
As the company expands its full credit spectrum lending, CarMax faces potential increased provisioning for loan losses. This could affect its net interest margins and overall profitability if not managed effectively.
Macroeconomic factors such as potential tariffs and rising new car prices could lead to volatility in car prices and parts costs. This poses a risk to cost of goods sold and could pressurize service margins.
The decision to withdraw specific timelines for long-term goals due to macroeconomic uncertainty might indicate challenges in maintaining growth momentum, which could impact revenue and earnings visibility.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $81.438 for CarMax based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $120.0, and the most bearish reporting a price target of just $52.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $29.8 billion, earnings will come to $919.9 million, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 12.3%.
Given the current share price of $61.38, the analyst price target of $81.44 is 24.6% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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