On Nov 28, 2013, we maintained our Neutral recommendation on
) based on its increasing revenues, focus on the used-vehicle
market and aggressive store expansion strategy, which offset the
Why the Reiteration?
CarMax posted a 29.2% increase in earnings per share to 62
cents in the second quarter of fiscal 2014 (ended Aug 31, 2013).
Earnings exceeded the Zacks Consensus Estimate by 5 cents.
Net sales and operating revenues in the quarter rose 17.7% to
$3.2 billion, beating the Zacks Consensus Estimate of $3.1
billion. The year-over-year improvement can be attributed to
improved used vehicle sales, wholesale vehicle sales and higher
revenues from extended service plans.
Unlike its peers, CarMax focuses more on the used-car market,
which helps it to outperform the industry. Moreover, the company
follows an aggressive store growth policy and strong capital
deployment strategy, which boost earnings.
During the first half of fiscal 2014, CarMax opened 5 stores,
bringing its used car superstore count to 123 as of Aug 31, 2013.
The company intends to open 13 stores in fiscal 2014 and 10-15
superstores in both fiscal 2015 and 2016.
However, the used-car market in the U.S. is highly fragmented
and competitive. Moreover, incentives on new cars have encouraged
consumers to trade in their old cars for new, which has lowered
used-car sales and increased the used-car inventory. This is
forcing CarMax to lower the prices of vehicles, thereby shrinking
Moreover, higher inventory and decline in accounts receivables
and auto loans receivables are resulting in high cash outflow
from operating activities. As a result, we maintain our Neutral
recommendation on CarMax.
Other Stocks to Consider
CarMax currently carries a Zacks Rank #2 (Buy). Stocks from
the broader industry that warrant a look include
Pep Boys - Manny, Moe & Jack
U.S. Auto Parts Network, Inc.
). All of them carry a Zacks Rank #2.
CARMAX GP (CC) (KMX): Free Stock Analysis
LEAR CORPORATN (LEA): Free Stock Analysis
PEP BOYS M M &J (PBY): Free Stock Analysis
US AUTO PARTS (PRTS): Free Stock Analysis
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