On May 9, 2014, we issued an updated research report on
). CarMax posted adjusted earnings per share of 52 cents in the
fourth quarter of fiscal 2014 (ended Feb 28, 2014), increasing 13%
from 46 cents a year ago. Earnings lagged the Zacks Consensus
Estimate of 53 cents.
Net sales and operating revenues in the quarter rose 8.8% to
$3.08 billion, lagging the Zacks Consensus Estimate of $3.19
billion. The year-over-year improvement in revenues was mainly due
to increases in used vehicle sales, new vehicle sales and higher
revenues from service department sales.
In the long run, CarMax's focus on the used-vehicle market and
its aggressive store expansion strategy should help it outperform
peers. The company also follows a strong capital deployment
strategy via share buybacks.
However, we are concerned about the pressure on used-vehicle
margins, high competition in the used-car market and high cash
outflow of the company. In fiscal 2014, CarMax had a cash outflow
of $613.2 million from operations. Capital expenditures increased
to $310.3 million from $235.7 million in fiscal 2013.
CarMax reported positive earnings surprises in 2 of the trailing
4 quarters with an average beat of 4.27%. The Zacks Consensus
Estimate for the company's fiscal 2015 (ended Feb 28, 2015)
earnings is $2.43 per share, up 8.43% over fiscal 2014.
CarMax currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked automobile stocks worth considering are
U.S. Auto Parts Network, Inc.
Fuji Heavy Industries Ltd.
). Currently, Volkswagen carries a Zacks Rank #1 (Strong Buy),
while U.S. Auto Parts and Fuji Heavy Industries are Zacks Rank #2
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