• Morningstar analyst David Whiston expects more upside in CarMax, but strongly predicated the bull scenario on the company managing to lower costs and improve customer conversion. 
• At least eight Wall Street analysts raised their price targets on CarMax, including at least one bullish upgrade, following the results.
• For the first quarter, CarMax reported revenue of over $8 billion and earnings per share of $1.31, both comfortably ahead of estimates.

Shares of CarMax (KMX) were in the spotlight after Morningstar issued positive commentary on the largest used car retailer in the U.S., cheering the new chief executive’s plans for the company.

At the time of writing, KMX stock was up 10%, offsetting the 9% decline it recorded after reporting first-quarter results on Wednesday.

Morningstar’s Takeaway On KMX

CarMax’s new CEO, Keith Barr, teased a four-pillar strategy to overhaul the company, with details to be unveiled late in the fall. This didn’t appeal to impatient investors, even though the company reported a strong top- and bottom-line beat for the first quarter (Q1), the firm said in its research note.

“The market is eagerly awaiting details of the new strategy, which we think caused the
stock's June 17 decline,” said analyst David Whiston.

Whiston said he appreciated the new CEO’s focus on costs and on optimizing the customer experience, which will help grow profits and send the stock higher. The firm certainly expects more upside, but strongly predicated the bull scenario if the company manages to lower costs and improve customer conversion.

“We are glad to hear Barr recognize that the omnichannel approach needs to be improved so customers can make their store visit experience easier after starting the buying process online,” Whiston said.

Morningstar has a five-star rating on KMX, which is equivalent to a “Strong Buy” rating, with a fair value of $96, implying an upside potential of 102% from the stock’s last closing price.

For Q1, CarMax reported revenue of over $8 billion and earnings per share (EPS) of $1.31, both comfortably ahead of the Fiscal AI consensus estimates of $7.43 billion for revenue and $0.98 per share for EPS.

Other Street Takeaway On KMX

At least eight Wall Street analysts raised their price targets on CarMax, which included at least one bullish upgrade.

Stephens upgraded the company to “Overweight” from “Equal Weight,” citing an excellent setup for growth. The firm said the company just has to focus on being “the best version of itself right now,” implying the need for strong execution, TheFly reported.

JPMorgan analyst Rajat Gupta said the company's Q1 report shows "signs of progress." Truist noted that the company is working on improving its price competitiveness and customer experience.

Meanwhile, RBC Capital said the management deserves credit for moving quickly to address price competitiveness. Barclays said it is "encouraged" by the steps CarMax is taking to right-size the business.

What Do Retail Traders Think About KMX?

On Stocktwits, retail sentiment toward KMX stock turned ‘neutral’ from ‘bearish’ over the last 24 hours.

KMX stock has gained nearly 36% so far this year but declined nearly 19% over the last 12 months.

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