CarMax inc. (KMX, Financial) is a used vehicle retailer in the United States. The Company operates through two segments, CarMax Sales Operations and CarMax Auto Finance. It offers buying customers a range of makes and models of used vehicles, including domestic, import and luxury vehicles, as well as hybrid and electric vehicles. It also sells extended protection plans to customers at time of sale and offers older vehicles that are around 10 years old and have over 100,000 miles through wholesale auctions.
The company also provides vehicle reconditioning and repair services and financing alternatives for retail customers across the credit spectrum through its CarMax automotive financing and arrangements with various financial institutions.
As of February 28, it operated approximately 230 used car stores. Founded in 1993, CarMax currently has a market capitalization of $13.6 billion.
CarMax has traditionally offered a no-haggle pricing system that eliminates the frequent customer frustration with the buying process at typical dealerships, allowing customers to buy vehicles the same way they buy others. consumer products. The company’s omnichannel platform further enables customers to buy a car on their own terms – either online, in-store or a seamless combination of the two. Customers can choose to complete the car buying experience in person at one of the company’s many stores, or buy the car online and receive delivery by Express Pickup or Home Delivery, which is widely available. for most customers.
The company reconditions every used vehicle sold to meet CarMax certified quality standards, and each vehicle must pass a thorough inspection before being offered for sale. The company offers warranties that give customers the option of 24-hour test drives before committing to a purchase, as well as a 30-day/1,500-mile money-back guarantee as well as a 90-day limited warranty. days/4,000 miles.
In June, CarMax released its first quarter 2023 results for the period ending May 31. Revenue increased 21% to $9.3 billion and gross profit per retail used unit was $2,339, an increase of $134 from the prior year quarter.
The company sold 427,257 cars, down 5.5% from the same quarter a year ago. Total retail used vehicle sales decreased 11% to 240,950 and same-store used unit sales decreased 12.7% from the prior year period. A number of macro factors weighed on these results, including the expiry of stimulus benefits, widespread inflationary pressures, vehicle affordability issues and declining consumer confidence levels.
The company’s finance unit generated revenue of $204.5 million, down 15.4% from the same period last year. A large change in the loan loss provision was mainly responsible for the decline, as CarMax now expects a more normalized environment (meaning more defaults).
CarMax’s balance sheet has a large amount of non-recourse debt in connection with its financing and inventory lending operations. Traditional debt was $2.6 billion and unrestricted cash was $95.3 million. The company generated $436.1 million in free cash flow during the quarter.
Analyst consensus estimates for earnings per share for the fiscal year ending February 2023 are $5.60 and $5.98 for the following year. This puts the company selling at 15 times current year earnings. CarMax’s historical price-to-earnings ratios have often been in the low 10-20 range.
The GuruFocus discounted cash flow calculator creates a value of approximately $97 using $5.60 as a starting point for earnings per share and applying a long-term growth rate of 8%.
The company currently pays no dividends, but actively returns capital to shareholders through share buybacks.
Gurus who recently bought shares of CarMax or added to their posts include
Steven Romick (Businesses, Portfolio) and
Chuck Akre (Businesses, Portfolio)’s Akre Capital Management. Investors who have reduced their positions in the stock include
PRIMECAP management (Businesses, Portfolio) and
Caxton Associates (Jobs, Portfolio).
CarMax appears to be operating successfully despite a difficult inflationary environment. CEO Bill Nash recently said, “CarMax is well positioned to drive profitable market share gains in any environment and compete across the entire used automotive ecosystem through our exceptional associates, a unparalleled omnichannel experience, a diverse business model, strategic investments and relentless innovation. .”
The stock is selling near 52-week lows and appears to be priced at an attractive entry point.