Carmax (KMX) - Bear Of The Day

CarMax (KMX) continues to face a difficult used-vehicle environment, largely due to aggressive incentives being offered by new vehicle manufacturers.

Declining used-car value due to the ongoing weakness in the overall economy and higher funding cost at the CarMax Auto Finance are eroding the margins of the company. The current economic slowdown and reduced consumer spending had a negative impact on the company’s retail business. It is aggressively cutting prices on trucks and SUVs to reduce inventory.

A drop in earnings and a higher valuation make us apprehensive about the stock s performance in the near term. Thus, we rate the stock a Sell and maintain our six-month target price of $7.50.

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