Goldman Sachs Sees 'Appealing Entry' in CarMax (KMX), Adds to Conviction Buy List

(Updated - August 3, 2015 8:27 AM EDT)

Goldman Sachs upgraded CarMax (NYSE: KMX) from Buy to Conviction Buy with a price target of $78 (unchanged). Analyst Matthew J. Fassler sees a more compelling entry point given recent share price weakness.

Fassler explained "The original tenets driving our July 8 upgrade remain intact: we see a powerful log-run unit growth story and a supportive used car product cycle. The stock has fallen since, creating a more appealing entry point. We believe the decline relates to concerns about dealer gross profit trends in the marketplace, and to increased regulation of auto finance; we do not see serious challenges to the KMX thesis from either of these factors. Moreover, our recent visit with management suggests improvements to marketing that could aid top-line and share gains further."

"We stand above consensus for 2Q; our sales forecast is above the Street’s, based on a return to typical seasonality in the core used car business, excluding the impact of volatility associated with subprime. We anticipate reacceleration to double-digit growth in core retail EBIT and EPS in 2Q, continuing through the rest of the year. Beyond the quarter, an updated marketing message designed to tell the story of KMX's differentiation more effectively should be out before yearend," added the analyst.

For an analyst ratings summary and ratings history on CarMax click here. For more ratings news on CarMax click here.

Shares of CarMax closed at $64.51 yesterday.

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