NEW YORK (TheStreet) -- CarMax (KMX) shares were falling 2.7% lower to $50.41 as of 12:06 p.m. EST as Goldman Sachs' downgraded the used car retailer to neutral from buy. While Goldman analyst Matthew J. Fassler raised his price target to $55 from $53, he says the used-car dealership will likely face tougher credit dynamics in 2014 leading to a depression in earnings growth.
CarMax reported revenue grew 18% to $3.25 billion for the second quarter ended August 31 compared to the year-ago quarter. Net earnings increased 26% to $140.3 million or 62 cents a share.
Overall, CarMax is lagging the S&P 500 which is up 0.19%.
TheStreet Ratings team rates CarMax as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation: "We rate CarMax a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, revenue growth, good cash flow from operations, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CarMax has improved earnings per share by 23.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CarMax increased its bottom line by earning $1.87 vs. $1.79 in the prior year. This year, the market expects an improvement in earnings ($2.20 vs. $1.87).
- Despite its growing revenue, the company underperformed as compared with the industry average of 21.6%. Since the same quarter one year prior, revenues rose by 19%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has increased to -$77.58 million or 32.84% when compared to the same quarter last year. In addition, CarMax has also modestly surpassed the industry average cash flow growth rate of 29.87%.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 60.3% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, CarMax has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full analysis from the report here: KMX Ratings Report
Check Out Our Best Services for Investors
Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
Check Out Our Best Services for Investors
Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
Every recommendation goes through 3 layers of intense scrutinyquantitative, fundamental and technical analysisto maximize profit potential and minimize risk.
Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.