Institutional Confidence In Carmax Remains High

Insider Selling In Carmax Ceases In Q4 

Insiders were selling Carmax (NYSE: KMX) earlier this year but that activity has stopped. Insiders sold 925,010 shares during the first three quarters of the year but there has been no activity of record in the time since. The selling equals 0.57% of the shares outstanding, no large amount, and was done by a wide range of execs via regular small sales consistent with profit-taking by individuals receiving share-based compensation. As it stands now, insiders hold about 1.76% of the stock. 

More importantly, Insidertrades.com shows institutional confidence in the company remains high with holdings amounting to 96% of the company. The caveat is that institutional activity has been heavy this year with the gross of buying and selling activity amounting to nearly 25% of the market cap. The key takeaway, however, is that institutions were and are net buyers in Carmax. With this in mind, it looks like the post-earnings release pullback in price action is setting up a buying opportunity for investors in 2022. 

Carmax Has Eye-Popping Quarter 

Carmax had an eye-popping FQ3 in which revenue grew 64.3% from last year and beat the consensus estimate by 1500 basis points. The strength was driven both by an increase in volume and pricing which had a significant impact on the bottom line. The company reports a 29.3% increase in total volume driven in turn by a 16.9% increase in retail and a 48.5% increase in wholesale. On a comp basis, sales are up a strong 15.8% and aided by the addition of one new store. Looking forward, the company is expecting to open a total of 10 new stores this fiscal year with 4 planned openings in the current quarter. 

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Moving down the report, the company experienced some pressure on margins but not enough to offset the revenue strength. The company reports an $84 per car increase in retail margin and a $225 per car increase in the wholesale margin that we see widening further in the current quarter. This helped to drive $1.63 in GAAP earnings or up 14.8% from last year and $0.19 better than the consensus estimate.

Are Analysts Fleeing Carmax? 

The analysts are still bullish on Carmax but there are two noteworthy trends to be aware of. The first is that analysts appear to be leaving Carmax as there are 4 fewer active ratings now than in the 1st half of the year. The second is that the consensus estimate is on the rise and implies at least 21% of upside is in store for this market. The latest activity is from J.P. Morgan and came out two weeks prior to the earnings release. J.P. Morgan upped its rating on Carmax two notches to Overweight from Neutral and raised the price target to $160 compared to the $155 consensus estimate. The high price target of $200 was set by Bank Of America in July and implies more than 55% of upside for the stock. 

The Technical Outlook: Carmax Is In Retreat 

While the results and outlook for Carmax are robust the stock is pulling back sharply on fears rising prices will cut into net sales. While a risk, there is no sign of that now and, with the market in correction territory, this event is most likely priced into the market or getting priced in right now. In our view, the sell-off is gaining steam and will likely take the stock lower before hitting firm support but it will hit firm support. Not only are revenue and earrings growing but there is a healthy buyback program to support prices as well. The company repurchased 0.9 million shares for about $115 million during the 3rd quarter and still has $876.2 million left to go. 

Companies in This Article:

Company	Current Price	Price Change	Dividend Yield	P/E Ratio	Consensus Rating	Consensus Price Target
CarMax (KMX)	$38.88	-0.4%	N/A	11.40	Reduce	$41.54