Investing.com -- Bank of America upgraded CarMax to Buy from Underperform and raised its price target to $65 from $50, saying increased price transparency across the used-car industry has made the retailer the most price-competitive it has been in years.

Shares in the used vehicle retailer rose more than 3% in premarket trading Thursday.

Analysts Alexander Perry and Jack Joyce said the shift reflects their expectation for sustained positive comparable sales. CarMax’s used unit comparable sales rose 13% in its fiscal second quarter, versus a 2% decline for the industry. BofA attributed the outperformance to Federal Trade Commission enforcement of price transparency, which began in May and has required competing dealers to advertise all-in prices rather than figures that exclude hidden fees, a practice CarMax had long used on its own.

CarMax attributes about half of its improved price competitiveness to the FTC crackdown, analysts said, and they see "a longer tail" ahead as compliance increases and better perceived pricing builds repeat customers. The bank’s own survey of roughly 500 listings across six high-volume 2023 models found CarMax’s advertised prices were 0.3% above the market average, compared with Carvana at 1.2% below and franchise dealers at 0.1% below.

BofA said cost cuts could fund further price competitiveness, pointing to initiatives such as a centralized parts selection tool, a shorter 30-day warranty and fewer vehicle transfers among the roughly 2 million to 2.5 million vehicles CarMax moves each year.

The bank expects the Nov. 3 strategic update to serve as a near-term catalyst, where it anticipates CarMax will outline cost initiatives meant to sustain positive comparable sales growth as the initial pricing and FTC-related tailwinds fade.

The analysts also pointed to a shift among wealthier consumers into late-model used vehicles amid stretched new-vehicle affordability, with average transaction prices around $50,600 in September.

CarMax’s average selling price rose 6% in the fiscal second quarter on a favorable mix, outpacing the broader industry’s 2% rise, while sales to lower-income households stayed stable, meaning the shift from higher-income buyers is adding incremental volume rather than replacing existing sales, the analysts said.

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