Truist Securities lowers CarMax stock price target to $47 on weak Q2

CarMax (KMX) reported significantly weaker-than-expected fiscal Q2 2025 results, with EPS of $0.64 and revenue of $6.59 billion falling substantially short of projections, primarily due to a 6.3% decline in used unit comparable sales and underperforming CarMax Auto Finance amid worsening loan vintages. Consequently, Truist Securities slashed its price target to $47.00 from $74.00, while maintaining a 'Hold' rating, acknowledging a balanced risk/reward profile despite the stock's year-to-date decline and perceived undervaluation.

Analysis

CarMax (KMX) has reported significantly weak fiscal second-quarter 2025 results, signaling intensifying operational and financial pressures. The company's earnings per share of $0.64 missed analyst projections of $1.04 by a substantial 38.46%, while revenue of $6.59 billion also fell short of the $7.04 billion consensus. The core driver of this underperformance was a 6.3% decline in used unit comparable sales, a stark reversal from analyst expectations for a 3.0% increase, indicating persistent market share challenges. This negative operational momentum is further evidenced by a deteriorating two-year stack run-rate, which has shifted from positive 4% to negative 2%. Compounding these issues, the CarMax Auto Finance (CAF) segment underperformed due to worsening credit quality in its 2022/2023 loan vintages, forcing higher loss provisions and a revised company outlook for the segment to be flat or slightly down for the year. In response, Truist Securities has drastically cut its price target to $47.00 from $74.00, though it maintains a 'Hold' rating, citing a balanced risk/reward profile given the stock's 30% year-to-date decline and a valuation that appears discounted at a 12.9x P/E ratio.

Key Decisions for Investors

• Given the sharp decline in comparable sales and deteriorating credit quality in the auto finance arm, investors should exercise significant caution, as negative operational momentum presents a major headwind.
• The stock's valuation, which appears low with a P/E of 12.9x and a 45% discount to the market, may represent a value trap; the depressed price likely reflects heightened fundamental risks and an uncertain forward path.
• Monitor trends in used-vehicle comparable sales and provisions for loan losses in subsequent quarters, as any stabilization could signal a potential trough, while further deterioration would reinforce a bearish thesis.