Rod Lache Lays Out The Tactical Reason To Stop Buying CarMax Shares
CarMax, Inc (NYSE: KMX) is struggling in November as it dropped around 7 percent during the month.
The Analyst
Deutsche Bank's Rod Lache downgraded the stock from Buy to Hold and he also decreased its price target from $84 to $76.
The Thesis
Deutsche Bank upgraded CarMax Oct. 23, 2016 based on a forecast of significant same-store sales growth as decreasing used vehicle prices made used cars more affordable than the new ones. It seems the thesis played out in the last 12 months, but Lache now sees more balanced risk/reward and therefore he wants to tactically reduce his recommendation.
The stock is trading at the low end of the historical 18 times-22 times forward earnings range. There is no specific cause for concern, but it seems that the comparison of used cars price versus new cars price is going to be somewhat challenged going forward, said Lache. He expects a higher hurdle rate for achieving operating leverage as CarMax increases investment in digital capabilities.
The Price Action
CarMax opened Friday 2.68 percent lower and it managed to regain some ground after the opening. It's now trading around 1.4 percent lower and it pulled back around 12 percent from its 52-week high.
Related Link:
Downshifting CarMax To A Perform Rating, Analyst Sees Continuing Sales Momentum In Question
Latest Ratings for KMX
Nov 2017 | Deutsche Bank | Downgrades | Buy | Hold |
Oct 2017 | Oppenheimer | Downgrades | Outperform | Perform |
Oct 2017 | Berenberg | Initiates Coverage On | Hold |
View More Analyst Ratings for KMX
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