Carmax (KMX, Financial) recently reported strong Q4 results with its EPS of $0.67 coming well ahead of consensus estimates. Summarizing the results Stifel’s analyst James Albertine highlighted the following key metrics:
- Used Retail - Outperform: KMX reported +7.0 percent used retail comp unit growth, well above our +6.0 percent estimate and +6.0 percent StreetAccount consensus. We note +0.6 percent comp ASP growth was below our +2.5 percent model, blending to +7.6 percent total comp used retail sales (vs. our +8.1 percent estimate). KMX noted its seventh consecutive quarter of y/y growth in traffic as well as improved conversion.
- Used Wholesale - Outperform: KMX reported +12.3 percent wholesale unit growth vs. our +6.0 percent model while +3.5 percent ASP growth was ahead of our +2.0 percent estimate, blending to +17.0 percent total wholesale sales growth vs. our +8.1 percent model.
- CAF Income - Underperform: CAF income rose +11.8 percent y/y to $90.4 mm vs. our +8.2 percent y/y to $87.4 mm estimate, driven by a +17.8 percent y/y increase in average managed receivables (vs. our +16.8 percent y/y estimate) to $8.2 bn. Total interest margin declined to 6.26 percent from 6.63 percent in 4Q13 relative to our 6.20 percent estimate.
CarMax's shares have risen 70% over the last one year due to accelerating sales and earnings growth. Ron Baron (Trades, Portfolio) of Baron Funds recently highlighted his bullish thesis on the company stating,
“Demand for the company’s high quality, late model vehicle inventory has remained strong and coincides with resurgent new car sales and an attractive financing environment. In addition, shares have been buoyed recently by the announcement of a large share repurchase program that we believe will be significantly accretive to earnings over the next several years.”
I believe CarMax’s stock is likely to continue its outperformance. CarMax is the nation’s largest retailer of used cars based on sales. CarMax is the first used vehicle retailer to offer a large selection of high quality used vehicles at low, “no-haggle” prices using a customer-friendly sales process in an attractive, modern sales facility. It allows customers to shop for vehicles the same way they shop for items at other “big-box” retailers. In addition the company also provides financing alternatives to its customers through CAF, its own finance operation, and third-party financing providers.
The company's EPS forecast for the current fiscal year is $3.05 and next year is $3.36. According to the consensus estimates, its top line is expected to grow 10.50% current year and 10.10% next year. It is trading at a forward P/E of 21.78. Out of 16 analysts covering the company, eight are positive and have buy recommendations, seven have hold ratings and one has a sell rating.
Last quarter, CarMax posted 14.2% revenue growth, 44.3% net earnings growth, and 52.3% earnings per share growth. The company reported a 7.0% increase in comparable-store sales. During this period, the company opened one store in Cleveland and repurchased 3.4 million shares of common stock for $210.6 million.
In addition to store and store traffic growth, the company's web traffic also continued to expand. For the fourth quarter compared to last year, average monthly web visits grew over 9% to nearly 14.5 million. Visits to CarMax's mobile site continued to grow and represented approximately 32% of total visits, while visits utilizing its mobile apps represented another 16% of the total.
The company has a customer friendly model and is still in early phase of national roll out. CarMax is trading at a forward PE of 21.78. The company's EPS has grown from $1.79 in FY2012 to $2.82 in FY2015. Analysts are expecting the company's EPS to grow by 8.36% in FY2016 and 10.16% in FY2017. Given the company's long-term growth potential, I believe the company is a good buy.
