Needham upgrades ‘industry leader’ CarMax into market recovery

Needham upgraded CarMax to Buy from Hold with a $99 price target. The analyst thinks a used vehicle market recovery, as suggested by recent data, will benefit the “industry leader” CarMax. The firm sees potential for a multi-year recovery, with interest rate relief and rising used vehicle supply pushing down selling prices and monthly payments. It is confident in its in above-consensus retail unit estimates, which assume CarMax’s share gains resume and its omni-channel investments pay off as units grow. In addition, the bear case on the consumer finance business has softened, as the company’s auto finance spreads are widening, and it is taking lower loan loss provisions. Needham thinks the seasoning of loans made at peak used-vehicle selling prices and CarMax’s increased focus on retail units and share gains will prove a net positive for the stock.