NEW YORK (AP) -- A William Blair analyst on Tuesday downgraded CarMax Inc. to "Market Perform" from "Outperform," saying that sales expectations for the used car dealership chain may be too high and pointing to the steep increase in its share price.
THE OPINION: Sharon Zackfia said current investor expectations likely don't adjust for more normalized buying trends in April and May after strong March results that were boosted by a later tax refund season. Meanwhile, costs related to the continued pickup in the company's new store development could reduce its profits, she said.
"Admittedly, our downgrade could be early, as absolute sales trends remain strong so far in the May quarter," Zackfia wrote in a note to investors.
Zackfia noted that the company's share price has risen about 30 percent so far this year, recently hitting an all-time high, after gaining about 23 percent in 2012. As a result, CarMax may have to "grow into its valuation," which could make it harder for its shares to rise much as the year progresses, she said.
She added that her first-quarter profit prediction for CarMax of 60 cents per share remains well over the average. Analysts polled by FactSet expect earnings of 57 cents per share.
THE SHARES: Up 62 cents, or 1.3 percent, to $48.45 in afternoon trading.
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