How Investors May Respond To CarMax (KMX) Loan Loss Surge and Earnings Decline

• CarMax, Inc. recently reported second quarter earnings showing sales of US$174.4 million and net income of US$95.38 million, both down from the previous year, alongside a surprise US$142 million provision for loan losses in its CarMax Auto Finance division.
• Following these results, the company has faced heightened legal scrutiny and pronounced analyst concern over its loan portfolio and ability to balance competitive pressures with profitability.
• We'll now examine how rising loan losses and weaker demand could influence CarMax's investment outlook moving forward.

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CarMax Investment Narrative Recap

To invest in CarMax, a shareholder generally needs to believe in the company's ability to strengthen its market position through omnichannel growth, enhance its vehicle sourcing, and capture value from full credit spectrum lending. However, the recent spike in loan loss provisions and a drop in used-car demand has made the company's loan portfolio quality and short-term profitability the key focus, both the main catalyst (operational efficiency recovery) and the largest risk (further loan losses) could be materially influenced by this environment.

Of the recent announcements, the surprising US$142 million provision for loan losses in the CarMax Auto Finance division directly relates to concerns about expanding credit spectrum lending, which was previously viewed as a growth driver but now poses heightened risk to earnings and investor confidence.

In contrast, what investors might miss is the potential impact of increasing loan losses, especially if consumer credit trends continue to weaken and …

Read the full narrative on CarMax (it's free!)

CarMax's narrative projects $29.8 billion in revenue and $919.9 million in earnings by 2028. This requires 1.3% annual revenue growth and an earnings increase of $361.4 million from the current earnings of $558.5 million.

Uncover how CarMax's forecasts yield a $76.93 fair value, a 67% upside to its current price.

Exploring Other Perspectives

Five members of the Simply Wall St Community analyzed CarMax, with fair value estimates ranging widely from US$39.76 to US$99.80 per share. With loan losses front of mind, these varying perspectives underline how much forecasts and opinions about CarMax’s future can differ, click through to compare these viewpoints and see what matters most among retail investors.

Explore 5 other fair value estimates on CarMax - why the stock might be worth over 2x more than the current price!

Build Your Own CarMax Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your CarMax research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.
• Our free CarMax research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate CarMax's overall financial health at a glance.

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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.

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