Wedbush upgrades CarMax to Outperform on growth inflection

Wedbush analyst Seth Basham upgraded CarMax to Outperform from Neutral with a price target of $90, up from $85. The analyst says the company is near an inflection point in growth and market share performance while its profitability continues to improve on “enduring” retail strength and fixed cost leverage. After underperforming the retail used car industry’s unit growth by as much as 15 percentage points in fiscal Q2 of 2022 as CarMax faced tough comparisons and focused on profit over unit sales in an industry downturn, its underperformance has narrowed to an estimated nine percentage points in Q3 of 2023, the analyst tells investors in a research note. The firm sees CarMax’s comps turning positive in Q3 on easing comparisons and improving industry growth trends. While affordability pressures continue to constrain industry growth especially with another tick higher in interest rates, CarMax is now well positioned to take market share with a higher inventory mix of affordable older vehicles, says Wedbush.