CarMax, Inc. Earnings Missed Analyst Estimates: Here's What Analysts Are Forecasting Now

It's shaping up to be a tough period for CarMax, Inc. (NYSE:KMX), which a week ago released some disappointing second-quarter results that could have a notable impact on how the market views the stock. Results showed a clear earnings miss, with US$8.1b revenue coming in 4.8% lower than what the analystsexpected. Statutory earnings per share (EPS) of US$0.79 missed the mark badly, arriving some 43% below what was expected. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.

Check out our latest analysis for CarMax

Taking into account the latest results, the current consensus, from the 16 analysts covering CarMax, is for revenues of US$32.0b in 2023, which would reflect an uncomfortable 8.6% reduction in CarMax's sales over the past 12 months. Statutory earnings per share are forecast to plunge 22% to US$3.96 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$33.7b and earnings per share (EPS) of US$5.48 in 2023. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a pretty serious reduction to earnings per share estimates.

The consensus price target fell 19% to US$86.77, with the weaker earnings outlook clearly leading valuation estimates. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values CarMax at US$155 per share, while the most bearish prices it at US$48.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how analysts think this business will perform. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the CarMax's past performance and to peers in the same industry. We would highlight that sales are expected to reverse, with a forecast 17% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 14% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.1% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - CarMax is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of CarMax's future valuation.

Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for CarMax going out to 2025, and you can see them free on our platform here.

Even so, be aware that CarMax is showing 3 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.