The firm said it lowered its rating on the holding company, which operates in two segments: CarMax Sales Operations and CarMax Auto Finance, as it believes CarMax is facing multiple growth headwinds.
Morgan Stanley raised its price target on CarMax stock to $56 from $55.STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
CarMax is a retailer of used cars as well as a wholesale vehicle auction operator.
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 number of 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, growth in earnings per share, 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:
- KMX's revenue growth has slightly outpaced the industry average of 1.1%. Since the same quarter one year prior, revenues rose by 10.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- CARMAX INC has improved earnings per share by 12.9% 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 ($2.51 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 10.2% when compared to the same quarter one year prior, going from $140.27 million to $154.52 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.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's 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 the other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: KMX Ratings Report