When it comes to used cars in the United States, Car Max Company New York Stock Exchange: KMEX It stands out as the largest used car dealership. The auto, tire and trucking giant operates over 245 physical dealerships in the country and has popularized the concept of ‘no-haggle’ pricing policy for buying used cars. The company buys, sells, services and finances automobile purchases through its CarMax Auto Finance division, which generates more than $8 billion in receivables annually.
The auto industry has been in a state of extreme volatility since 2019, experiencing an unprecedented boom during the pandemic and then a painful return to normal afterward. However, CarMax is starting to reignite growth again after nine consecutive quarterly declines in year-over-year revenue. It also recorded its largest earnings per share (EPS) since the first quarter of 2024.
CarMax has many competitors, from the rival giant Autonation Company New York Stock Exchange: An to Carvana Company New York Stock Exchange: KFNALocal agents and online sites such as Cars.com New York Stock Exchange: Auto and CarGurus Company Nasdaq: CarG.
Q3 marks the start of the return path
CarMax today
(As of 12/31/2024 at 05:32 PM ET)
- 52 week range
- $65.83
▼
$91.25
- P/E ratio
- 30.74
- Price target
- $85.17
Investors received an upbeat earnings report for the third quarter of 2024, with CarMax earning 81 cents per share, strongly beating consensus estimates by 19 cents. Revenue rose 1.2% year over year to $6.22 billion, sharply beating consensus estimates of $6.15 billion. The positive revenue growth comes after nine consecutive quarters of year-over-year decline. This also exceeded analysts’ expectations for another declining quarter year-over-year.
CarMax Auto Finance (CAF) income increased 7.6% year over year to $159.9 million, driven by net interest margin ratio and average receivables under management. The company repurchased $114.8 million of stock in the quarter. Provisions for loan losses in the third quarter stabilized at $74 million, higher than last year at $68 million. This represents an improvement over the previous Q2 provision of $113 million, up from $90 million in Q2 2023.
Stable margins and positive revenue growth were highlighted
Total retail used vehicle sales rose 5.4% year over year to 184,243 units. Used unit sales at comparable stores increased 4.3% year over year. Total used retail units sold increased 1.2% year over year, driven by an increase in used retail units sold, which was partially offset by a 3.9% decrease in average retail selling price or approximately $1,100 per unit. Gross retail profit increased 1%, to an average of $2,306 per unit. wholesale Gross margin increased 5%, averaging $1,015 per unit. Extended Protection Plans (EPP) margin increased $53 per unit to $573. Service margin grew by $60 per retail unit.
CarMax purchased 270,000 vehicles from consumers and dealers, up 7.9% year over year. Among consumers, they purchased 237,000 cars, an increase of 4.1%. Of the dealers, they purchased 33,000 vehicles, up 46.7% year-on-year. Total online sales are up 32% year over year on top of 31% growth in the past year. This also includes all wholesale auction sales, which were virtual, and represented 19% of total revenue in the third quarter.
Bill Nash, CEO of CarMax, commented: “I am pleased with the positive momentum we are driving across our diversified business model. Our strong execution and a more stable vehicle valuation environment have enabled us to deliver strong EPS growth driven by increases in unit sales and purchases, strong margins, and growth in CAF income, and ongoing management of SG&A.
KMX stock is in an ascending triangle pattern
An ascending triangle is formed by the resistance of a flat, converging upper trend line with the support of a rising (bullish) lower trend line. A breakout occurs when a stock rises across the upper trend line. If the stock breaks down below the lower uptrend line, the pattern fails when a breakout forms.
KMX formed a flat upper trend line resistance at $87.57, and is converging with a bullish lower trend line formed at the swing low at $69.95. While the lower trend line has been tested and crossed three times, the daily flat VWAP is constantly holding support, which now stands at $80.18. The flat upper trend line almost broke out after earnings until a gap and trap created, causing KMX to return to the ascending triangle range. The daily fixed VWAP rate is $80.18. The daily RSI is stuck at the 52 range. Fibonacci (Pullback support levels (Fibonacci) are located at $79.67, $74.38, $70.62, and $65.83.
The average consensus target price for KMX is $85.17Which means an increase of 1.26% The analyst’s highest price target is at $105.00. It has six analyst ratings of Buy, five Hold ratings, and three Sell ratings. The stock has a short interest of 8.61%.
Actionable options strategies: Bullish investors can consider executing cash-secured sells at Fibonacci retracement support levels to buy the dip. If the stock is set, writing the covered call at rising Fibonacci levels implements the wheel strategy for income since there are no profits.
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