We are reiterating our Neutral recommendation on
). The largest retailer of used vehicles is benefiting from its
focus on the used-vehicle market vis-à-vis its peers. However, the
company's margin is under pressure as manufacturers and dealers are
providing incentives to attract more customers for trading old cars
for new ones.
AUTONATION INC (AN): Free Stock Analysis Report
CARMAX GP (CC) (KMX): Free Stock Analysis
PENSKE AUTO GRP (PAG): Free Stock Analysis
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CarMax, in the second quarter of fiscal 2013 (ended on August 31,
2012), reported a profit of $111.6 million, flat year over year.
Earnings of 48 cents per share missed the Zacks Consensus Estimate
of 52 cents.
Net sales and operating revenues increased 6.6% year over year to
$2.76 billion, surpassing the Zacks Consensus Estimate of $2.74
billion. Used vehicle sales improved 8.8% to $2.2 billion due to
higher unit sales. Unit sales went up 8.3% to 111,316 and average
selling price marginally increased to $19,494.
CarMax has been performing well with its focus on the used-car
market. The company is one of the strongest automotive retailers
Penske Automotive Group Inc.
). The company has leading liquidity and profitability ratios among
its peer group.
The company is rapidly expanding its stores to meet the increasing
demand in the U.S. The company opened 5 superstores during the
first half of fiscal 2013 (two in Florida, and the rest in
Tennessee, California and Pennsylvania). The company also plans to
open 10 superstores during fiscal 2013.
However, weak demand in the new vehicle market, primarily domestic
cars, has forced manufacturers to offer incentives and attractive
pricing. Incentives on new cars appears more attractive compared to
the old ones. As a result, the company has to lower used car
pricing to reduce inventory, thereby adversely affecting its
Moreover, the used car market is highly competitive with 37,500
independent dealers. In addition, millions of private individuals
are also engaged in the business.
Our Neutral recommendation on the stock is backed by a Zacks #3
Rank, which translates into a short-term (1 to 3 months) Hold