The analysts covering CarMax, Inc. (NYSE:KMX) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with the analysts seeing grey clouds on the horizon.
After the downgrade, the consensus from CarMax's 16 analysts is for revenues of US$16b in 2021, which would reflect a sizeable 22% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to crater 33% to US$3.47 in the same period. Previously, the analysts had been modelling revenues of US$21b and earnings per share (EPS) of US$5.42 in 2021. It looks like analyst sentiment has declined substantially, with a sizeable cut to revenue estimates and a pretty serious decline to earnings per share numbers as well.
The consensus price target fell 13% to US$83.71, with the weaker earnings outlook clearly leading analyst valuation estimates. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic CarMax analyst has a price target of US$118 per share, while the most pessimistic values it at US$58.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast revenue decline of 22%, a significant reduction from annual growth of 6.8% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 4.5% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - CarMax is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for CarMax. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of CarMax.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for CarMax going out to 2023, and you can see them free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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