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CarMax (KMX) Rides on Store Expansion Amid Expense Woes

Zacks Equity Research

On Jun 24, we issued an updated research report on CarMax, Inc. KMX.

The company focuses on aggressive store expansion in existing as well as new television markets. In first-quarter fiscal 2020, CarMax opened three stores, including two in new television markets — Waco, TX, and McAllen, TX, and one in the existing market of Memphis, TN. It plans to open stores in existing markets. Additionally, the company is making improvements to its digital platform to increase website traffic.

In first-quarter fiscal 2020, CarMax posted net earnings per share of $1.59, up 19.5% from $1.33 reported in the year-ago period. Moreover, earnings surpassed the Zacks Consensus Estimate of $1.49. Moreover, net sales and operating revenues in the reported quarter increased 12% year over year to $5.37 billion. The figure beat the Zacks Consensus Estimate of $5.22 billion.

Unlike its peers, the company focuses more on the used-car market. Expensive new vehicles led to robust demand for inexpensive used vehicles. The Zacks Consensus Estimate for CarMax’s current-quarter and current-year earnings has moved upward in the past thirty days.

However, in fiscal 2019, CarMax’s SG&A expenditure increased 7% to $1.73 billion on a year-over-year basis. Increased investments to develop technology platforms and digital initiatives along with share-based compensation expenses are also increasing expenses for the company.

Over the past three months, shares of CarMax have outperformed the industry it belongs to. During this time frame, shares of the company rallied 31.4% while the industry grew 6.3%.

Zacks Rank & Stocks to Consider

CarMax currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the auto space are Ford Motor Company F, Fox Factory Holding Corp. FOXF and Cummins Inc. CMI, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ford has an expected long-term growth rate of 7.3%. Over the past six months, shares of the company have gained 26.7%.

Fox Factory has an expected long-term growth rate of 16.4%. Over the past six months, shares of the company have gained 40.5%.

Cummins has an expected long-term growth rate of 8%. Over the past six months, shares of the company have gained 29.8%.

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