Last Update 20 Dec 25

Fair value Decreased 3.68%

KMX: Future Returns Will Depend On Credit Normalization Amid Execution Concerns

Analysts have trimmed their CarMax fair value estimate by about $1.50 per share to roughly $38, reflecting a series of reduced Street price targets in the $40s and $50s as concerns mount over slowing unit growth, weaker margins, and uncertainty around the company’s strategic execution.

Analyst Commentary

Street research on CarMax has shifted decisively toward caution, but views are not uniformly negative. Recent reports highlight a widening gap between concerns over near term execution risk and lingering confidence in the company’s long term strategic positioning and brand value.

Bullish Takeaways

Bullish analysts argue that recent earnings volatility and negative unit comps reflect timing and one time factors rather than a structural impairment of the business. This supports the case for eventual recovery in volumes and earnings power.
Some see upside to fair value if CarMax can stabilize credit performance, as current loan losses are viewed as concentrated in older vintages. This implies potential margin normalization and multiple expansion over time.
Despite target cuts, a subset of the Street maintains positive ratings, citing CarMax’s scale, brand and omnichannel platform as competitive advantages that could reassert themselves once macro and inventory headwinds ease.
Optimistic voices frame the current multiple compression as an opportunity for re rating if management demonstrates clearer progress on unit growth, retail GPU and digital execution over the next few quarters.

Bearish Takeaways

Bearish analysts highlight repeated Q2 shortfalls across key metrics as evidence that the path back to sustained comp and earnings growth is less visible. This is seen as warranting lower valuation multiples and more conservative long term sales assumptions.
There is growing concern that CarMax’s strategy lacks a clearly articulated plan to unlock underlying asset value, with risks of continued deterioration in year over year unit trends and retail GPU weighing on both near term and structural growth expectations.
Several research updates point to competitive share pressure, including from digital first rivals, and to supply constraints that could limit CarMax’s ability to recapture lost volumes. These issues are cited as justifying reduced price targets into the mid 40s or below.
Uncertainty around credit quality, higher loss provisions and the potential for further macro softness in used vehicle demand are leading more cautious analysts to favor a wait and see approach, with expectations for limited upside versus downside over the next 12 months.

What's in the News

CarMax announced leadership changes, with board member and veteran retail executive David McCreight appointed Interim President and CEO effective December 1, 2025, as longtime CEO Bill Nash steps down from his role and the board (Corporate filing).
The company issued third quarter 2025 guidance calling for an 8% to 12% decline in comparable used unit sales and net earnings per diluted share of $0.18 to $0.36, including $0.09 of non recurring restructuring related expenses (Corporate guidance).
CarMax faces multiple securities class action lawsuits alleging the company overstated growth prospects that were temporarily boosted by tariff related buying, with lead plaintiff motions due by January 2, 2026 (Legal filings).
The company expanded its customer offering with nationwide at home pickup for vehicle appraisals and the launch of Offer Watch, a tool that tracks a car’s value over time and supports more flexible sell on your terms options (Company announcement).
CarMax was removed from the S&P 500 and several related S&P 500 style and sector indexes and concurrently added to the S&P 600 and Russell Small Cap Comp Value Index, marking a notable shift in its index representation (Index provider updates).

Valuation Changes

Fair Value Estimate has been reduced slightly from approximately $39.77 to $38.31 per share, reflecting a modestly lower long term earnings outlook.
Discount Rate remains unchanged at 12.5%, indicating no shift in the assumed risk profile or cost of capital for CarMax.
Revenue Growth expectations have improved, moving from a steeper projected decline of about -2.1% to a milder decline of roughly -0.8%, suggesting less severe top line pressure than previously modeled.
Net Profit Margin forecast has edged lower from roughly 3.1% to about 2.8%, pointing to slightly weaker anticipated profitability over the forecast period.
Future P/E multiple has been trimmed modestly from about 8.8x to 8.3x, signaling a small contraction in the valuation investors are expected to pay for CarMax’s forward earnings.

Growth in digital sales channels and improved vehicle sourcing are expected to boost market share, revenue, and gross profit margins.
Expansion of credit spectrum lending and cost reductions aim to enhance financing income, profitability, and net margins.
Macroeconomic and competitive pressures challenge CarMax's margins and growth, with rising inventory and loan costs and uncertainties affecting profitability and strategic clarity.

Catalysts

About CarMax

Through its subsidiaries, operates as a retailer of used vehicles and related products in the United States.What are the underlying business or industry changes driving this perspective?

CarMax's growth in digital sales channels, including an increase in omnichannel sales, positions the company to expand its market share and boost revenue in the future. The ongoing enhancements to their digital tools are expected to further integrate online and in-store sales.
Expansion in the company's vehicle sourcing capabilities, particularly through dealer channels and improved consumer experience, is intended to support unit volume growth and improve gross profit margins by lowering vehicle acquisition costs.
CarMax's initiative to broaden its full credit spectrum lending capabilities through CarMax Auto Finance (CAF) is expected to increase CAF income and net interest margins over time. This initiative aims to capture more sales and improve financing income, impacting earnings positively.
The continued focus on operational efficiencies and planned cost reductions in logistics and reconditioning are expected to support stable or increased net margins and profitability as savings enhance the bottom line.
Planned investments in new store locations and reconditioning centers are intended to increase the company's physical footprint and operational capacity, driving revenue growth through expanded service capacity and higher vehicle sales.

CarMax Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming CarMax's revenue will grow by 1.3% annually over the next 3 years.
Analysts assume that profit margins will increase from 1.9% today to 3.1% in 3 years time.
Analysts expect earnings to reach $919.9 million (and earnings per share of $6.49) by about September 2028, up from $558.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $532 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from 16.5x today. This future PE is lower than the current PE for the US Specialty Retail industry at 18.7x.
Analysts expect the number of shares outstanding to decline by 3.13% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

CarMax Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

CarMax reported a decline in wholesale gross profit per unit, which can raise concerns about maintaining or growing gross margins if this trend continues.
The competitive pressure in the vehicle sourcing arena, especially with significant gains in dealer-sourced inventory, introduces risks to inventory acquisition costs, and could potentially compress gross profit margins.
As the company expands its full credit spectrum lending, CarMax faces potential increased provisioning for loan losses. This could affect its net interest margins and overall profitability if not managed effectively.
Macroeconomic factors such as potential tariffs and rising new car prices could lead to volatility in car prices and parts costs. This poses a risk to cost of goods sold and could pressurize service margins.
The decision to withdraw specific timelines for long-term goals due to macroeconomic uncertainty might indicate challenges in maintaining growth momentum, which could impact revenue and earnings visibility.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $81.438 for CarMax based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $120.0, and the most bearish reporting a price target of just $52.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $29.8 billion, earnings will come to $919.9 million, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 12.3%.
Given the current share price of $61.38, the analyst price target of $81.44 is 24.6% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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