Evercore ISI reiterates In Line rating on CarMax stock at $45

Evercore ISI kept an In Line rating on CarMax with a $45 price target, while trimming FY2026 EPS to $2.30 from $2.50 and FY2027 EPS to $2.70 from $2.80. Retail used unit comparable sales fell 1.9%, better than the expected 3% decline, but the company still faces pressure to restore 3% to 4% comparable growth to drive operating leverage. CarMax is expected to discuss its turnaround plan at its June 19 earnings release, with investor-day follow-up possible.

Analysis

The key signal is not the modestly better unit trend; it’s that management is still choosing margin sacrifice before proving demand elasticity. That usually only works if traffic is improving faster than reported comps or if the used-car supply backdrop tightens enough to support pricing later, but neither is visible yet. In other words, the bull case now depends on a second derivative: unit momentum must improve for several consecutive months before operating leverage can reassert itself.

The bigger risk is that KMX is being benchmarked against a recovery path that may be too linear. If management lowers ASPs and gross profit per unit to buy volume, the first-order effect is lower earnings per car, while the second-order effect is pressure on residual values and financing economics across the used-auto ecosystem. That can spill into weaker economics for online used competitors and independent dealers if the company decides to defend share aggressively.

Near term, the stock is likely to trade more like a macro credit and funding proxy than a retail turnaround. The master trust update matters because any deterioration in securitization spreads or delinquency trends would hit the valuation multiple faster than small changes in same-store sales. A meaningful re-rating probably needs both a visible comp inflection and evidence that the lower-price strategy is not permanently diluting unit economics.

Consensus seems to be underestimating how much of the upside is already contingent on normalization in the broader consumer credit cycle. If the economy holds but used-car affordability keeps improving, KMX can work over 6–12 months; if unemployment or delinquencies rise, the earnings reset could force another leg down. The setup is asymmetric only if management can show that volume gains are real and not just purchase incentives front-loading demand.

Key Decisions for Investors

• Avoid outright longs in KMX before the June 19 update; wait for either a positive comp re-acceleration or a securitization spread improvement, since the next 4–8 weeks are catalyst-heavy but proof-light.
• For existing KMX exposure, hedge with short-term downside protection: buy 1–2 month 40/37.5 put spreads into the earnings window to protect against another guidance reset.
• Pair trade: long O'Reilly (ORLY) / short KMX over 3–6 months. If used-car pricing stays soft, the parts/repair channel is less cyclical and should outcompete a margin-reset retail model.
• If you want a contrarian long, stage into a starter position only on a post-earnings pullback that holds above prior support, with a 6–12 month horizon and a tight stop if comps fail to inflect by the next monthly sales prints.
• Watch the master trust and delinquency data as the real trigger; if spreads widen materially, reduce KMX exposure regardless of near-term unit trends because the equity will likely de-rate before fundamentals stabilize.