On Mar 11, we maintained our Neutral recommendation on
), based on its aggressive store expansion strategy and focus on
the used-vehicle market, despite lower margins from used vehicle
sales owing to the aggressive incentives offers by manufacturers
CarMax reported a 13.9% rise in earnings per share to 41 cents in
the third quarter of fiscal 2013 ended on Nov 30, 2012 from 36
cents per share in the year-ago quarter. The EPS surpassed the
Zacks Consensus Estimate by 2 cents. Profits escalated 15.3% to
$94.7 million from $82.1 million in the year-ago quarter.
The company's net sales and operating revenues for the quarter
climbed 15.1% to $2.6 billion from $2.3 billion in the third
quarter of fiscal 2012. Revenues also beat the Zacks Consensus
Estimate of $2.5 billion.
Following the release of the third quarter results, the Zacks
Consensus Estimate for fiscal 2013 increased 0.5% to $1.87 per
share. The Zacks Consensus Estimate for fiscal 2014 also went up
by the same magnitude to $2.06 per share.
CarMax focuses more on the used-car market, which helps to
outgrow its peers. CarMax is one of the strongest operators with
leading liquidity and profitability ratios among the other
automotive retail companies including
Penske Automotive Group Inc.
CarMax undertook aggressive store expansion policy based on the
improving sales environment in the U.S. In the first nine months
of fiscal 2013, CarMax has opened 8 superstores and plans to open
around 10 more superstores in fiscal 2013.
However, we are concerned about the sluggish sales environment
for new vehicles particularly for domestic cars. The margins on
used vehicle sales were adversely affected by incentives and
attractive pricing offered by the manufacturers and dealers for
the new cars. High used car inventory is also putting pressure on
the prices, thus affecting the margins. In addition, the used-car
market in the U.S. is highly fragmented and competitive.
Other Stocks to Look For
O'Reilly Automotive Inc.
) is performing well in the industry where CarMax operates.
O'Reilly is a Zacks Rank #1 (Strong Buy) stock.
AUTONATION INC (AN): Free Stock Analysis
CARMAX GP (CC) (KMX): Free Stock Analysis
O REILLY AUTO (ORLY): Free Stock Analysis
PENSKE AUTO GRP (PAG): Free Stock Analysis
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