CarMax Stock Poised for 30% Rally as Bank of America Double Upgrades on Price Transparency Push

Bank of America has upgraded CarMax to a buy rating, citing the used car retailer’s highly competitive pricing and favorable industry shifts toward price transparency. In a double upgrade, the bank raised its price target on shares to $65, up from $50, indicating a potential 30% upside from Wednesday’s close.

“FTC enforcement of price transparency, combined with KMX’s own actions, has made KMX the most price-competitive it has been in years, driving share gains,” analyst Alexander Perry said in a note to clients. “We see a longer tail given increased compliance and better perceived pricing builds repeat customers.”

This year, the Federal Trade Commission began promoting more price transparency in the used car market. “For years, KMX’s low- or no-fee all-in prices were compared vs competitor advertised prices that excluded hidden fees,” Perry wrote. “Industry compliance with the FTC’s price-transparency push, which began in May, should help KMX take share from dealers forced to advertise higher prices.”

CarMax’s unit comparables were up 13% on a year-over-year basis for the fiscal second quarter, while those of its public peers declined 4% on average over the same period, according to Bank of America. Bank of America’s call goes against consensus on Wall Street. Of the 22 analysts covering CarMax, 17 have a hold rating on the stock, while just three have a strong buy on it, LSEG data shows. Shares are up about 29% year to date.

Source link