Story updated at 10 a.m. to reflect market activity.
Shares of Carmax gained 1.6% to $48.54 in morning trading.
The analyst firm also lowered its EPS estimates for the used-car retailer. The lower price target and EPS estimates are due to more consumers looking for new cars instead of used cars, according to Bank of America/Merrill Lynch analysts.
Separately, TheStreet Ratings team rates CARMAX INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate CARMAX INC (KMX) a BUY. This is driven by a few notable strengths, 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 revenue growth, impressive record of earnings per share growth, increase in net income, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 0.0%. Since the same quarter one year prior, revenues rose by 13.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CARMAX INC has improved earnings per share by 18.8% 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 INC increased its bottom line by earning $2.17 versus $1.87 in the prior year. This year, the market expects an improvement in earnings ($2.55 versus $2.17).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Specialty Retail industry average. The net income increased by 15.7% when compared to the same quarter one year prior, going from $146.65 million to $169.65 million.
- 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 INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- In its most recent trading session, KMX has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
- You can view the full analysis from the report here: KMX Ratings Report