These Analysts Revise Their Forecasts On CarMax After Q3 Results

CarMax posted Q3 2025 EPS of $0.43 (consensus $0.39) and adjusted EPS of $0.51 after excluding $0.08 per-share restructuring charges; quarterly revenue was $5.794 billion, down 6.9% year-over-year but above the Street estimate of $5.678 billion. Management named David McCreight as interim CEO while the board searches for a permanent replacement, shares slipped 1.6%, and several analysts trimmed price targets (most to $36, JPMorgan to $28) while RBC raised its target to $37, underscoring mixed investor reaction despite the upside to estimates.

Analysis

Market structure: CarMax’s beat (EPS $0.43 vs $0.39 est.; adj. $0.51) coupled with revenue down 6.9% to $5.794B signals demand softening for used vehicles while brand/physical footprint remain competitive. Winners: captive lenders, high-margin dealer groups (AutoNation AN, Lithia LAD) and online aggregators that can flex inventory; losers: leveraged independents and non-integrated retailers forced to discount to move ages-inventory. Cross-asset: KMX stress would modestly widen sub-investment-grade retail credit spreads and raise used-vehicle residual volatility, lifting auto-ABS yields and put pressure on consumer discretionary credit-sensitive names over 3–12 months.

Risk assessment: Key tail risks include a sudden macro slowdown that further depresses demand, a sharp rise in used-vehicle supply from lease returns, or a liquidity shock if floorplan lenders tighten — any could push KMX shares into the low $20s (10–30% downside). Near term (days–weeks) volatility will hinge on management cadence and CEO search updates; 3–12 months hinge on inventory turn and interest-rate path. Hidden dependency: KMX profitability is sensitive to financing spreads and auction prices; a 200–400bp increase in floorplan or consumer lending rates would meaningfully compress EBIT margins.

Trade implications: Tactical short via puts or small short position in KMX is prudent until clarity on CEO and inventory trends; consider buying 90-day puts sized 1–1.5% of portfolio (strike ~40) or short 1% position if liquidity allows. Pair trade: short KMX / long AN or LAD equal-dollar for 3–6 months to play relative operational resilience. For holders, implement 90-day collars (buy 35 put, sell 45 call) to limit downside to ~$35 and monetize elevated IV.

Contrarian angles: Consensus focuses on demand malaise but may underweight CarMax’s durable brand and scale advantages that could enable market-share gains if smaller rivals retrench; a disciplined restructuring under a new CEO could drive low-double-digit EPS recovery within 12–18 months. Current analyst PT compressions to ~$36–37 may underprice a successful turnaround while also leaving room for downside if margins worsen — the market is not yet binary, so trade size should be calibrated to catalyst timelines (CEO hire, inventory turn) over next 3–9 months.

Key Decisions for Investors

• Initiate a tactical bearish option position: buy 90-day KMX puts sized ~1–1.5% of portfolio notional (strike ~$40) expiring Mar 2026 to capture downside if guidance/CEO update disappoints; trim if KMX closes < $36.
• Establish a relative-value pair: short $1 of KMX and long $1 of AutoNation (AN) for a 3–6 month horizon to profit from operational/credit resilience; rebalance if spread moves >15% or after CEO appointment.
• For existing KMX holders, implement a 90-day collar: buy $35 puts and sell $45 calls to cap upside and limit downside to ~$35, rolling monthly until inventory turns or a permanent CEO is named.
• Set a disciplined long-entry trigger: only add a 2–3% long KMX position if price drops to ≤ $34 with improving inventory turn (decline in days’ supply month-over-month for two consecutive months) or if new CEO presents a clear >200bp margin-recovery plan to be executed within 12 months.