CarMax (NASDAQ:KMX) saw its shares slide after JPMorgan downgraded them to underweight, saying investors aren’t fully pricing in the risks surrounding the company and hope for a recovery looks “premature.”
Analyst Rajat Gupta said, "To be clear, we believe KMX is likely to be a long-term share gainer in the used car market and see investments over the last three years ultimately bearing fruit. However, the path to realizing this potential continues to get pushed out making it difficult to discount the timing and magnitude of normalized margins."
The firm assigned a price target of $60 to CarMax vs. the average analyst price target of $67.20.
Last week, Argus Research downgraded the stock to Hold from Buy.
The downgrade was prompted by macroeconomic factors as well as valuation concerns. Further, the stock is in a technical downtrend, leaving it difficult to recommend, according to Argus.
“In the near term, we believe used vehicle retailers like CarMax will struggle with their rapidly depreciating inventory and are unlikely to buy as many vehicles,” the downgrade note explained. “All other things equal, less inventory will lead to lower sales and lower margins. The harsh economic environment will also influence sales, as consumers remain cautious.”
KMX shares began Wednesday off $1.10, or 1.6%, to $66.29.
