On Jun 7, we maintained our Neutral recommendation on
) based on its aggressive store expansion strategy and focus on
the used-vehicle market that can offset the impact of lower
margins from used vehicle sales owing to the aggressive
incentives offered by manufacturers and dealers.
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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Why the Reiteration?
On Apr 10, CarMax posted a profit of $107.2 million or 46 cents
per share in the fourth quarter of fiscal 2013 ended Feb 28,
2013, slivering past the Zacks Consensus Estimate by a penny.
Profits increased 12.8% from $95.0 million or 12.2% from 41 cents
per share in the prior-year quarter.
After the earnings announcement, shares of CarMax reached a new
52-week high of $48.86 on May 16. Net sales and operating
revenues in the quarter rose 14% to $2.83 billion, topping the
Zacks Consensus Estimate of $2.70 billion.
Following the release of the fourth quarter results, the Zacks
Consensus Estimate for fiscal 2014 increased 0.5% to $2.07 per
share. The Zacks Consensus Estimate for fiscal 2015 went up 0.9%
to $2.29 per share. Currently, CarMax retains a Zacks Rank #3
CarMax focuses more on the used-car market, which helps to
outperform its peers. It is one of the strongest operators with
leading liquidity and profitability ratios among other automotive
retail companies including
Penske Automotive Group Inc.
CarMax undertook aggressive store expansion policy based on
improving sales environment in the U.S. In fiscal 2013, the
company opened 10 stores, bringing its used car superstore count
to 118 as of Feb 28, 2013. The company also plans to open 10 to
15 more superstores in each of the following two fiscal years.
However, we are concerned about the sluggish sales environment
for new vehicles, particularly for the 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. 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.
Currently, shares of O'Reilly retain a Zacks Rank #2 (Buy).