CarMax’s CEO Change Of Heart Is A Guess

Source: Jonathan Weiss /

Twenty-twenty-three started off slowly for insider buying. It’s not unexpected in a shortened trading week with the smell of economic uncertainty filling the air. As usually, we did find a noteworthy insider buy.

CarMax, Inc. (KMX) President and Chief Executive Officer (CEO), William Nash bought 8,220 KMX shares at $60.98 for a half-million-dollar investment. (1) The purchase is what we call a “Change of Heart”. Previously, Nash was a pure seller of CarMax stock. From November 2012 to January 2021, the CEO unloaded KMX shares 13 consecutive times from $34.50 to $123.14 per share, collecting nearly $72 million.

CarMax operates as a retailer of used vehicles in the United States. The company operates through two segments, CarMax Sales Operations and CarMax Auto Finance. It offers customers a range of makes and models of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles; and extended protection plans to customers at the time of sale, as well as sells vehicles that are approximately 10 years old and has more than 100,000 miles through wholesale auctions.

The company also provides reconditioning and vehicle repair services; and financing alternatives for retail customers across a range of credit spectrum through its CarMax Auto Finance and arrangements with various financial institutions. As of February 28, 2022, it operated approximately 230 used car stores.

Nash’s change of heart comes after Evercore ISI analyst Michael Montani said, “CarMax is battling a used-vehicle recession.” (2). Montani’s remarks were a reaction to the company’s net income for the most recent quarter crashing 86 percent as its used vehicle sales slid into a ditch, dropping more than 20 percent. (3)

Nash is not sure when the used car market will rebound. The CEO told JP Morgan analyst Rajat Gupta on the earnings conference call, “your guess is as far as what’s going to happen next year [2023] is as good as mine. I think what we’re trying to do is put ourselves in a position that regardless of what happens in the upcoming quarters, we’ll flex up. Or if we need to pull additional levers, we’ll pull additional leverage. So, we’re just trying to give ourselves flexibility at this point.”

While the CEO is uncertain about the used car business, analysts are cutting their outlooks for this year and next. Two months ago, Wall Street forecast consensus earnings per share of $4.07 and $4.55 for 2023 and 2024 respectively. Today, they stand at $2.88 for this year and $3.12 for next year.

Sales are expected to slide as well, dipping from $31.98 billion in 2022 to $30.13 billion this year and $28.23 billion in 2024. (4) With all that, the street doesn’t see upside in CarMax shares with a one-year price target of $61.64. KMX trades for $65.78 per share as we type. (5)

Looking back five years, CarMax traded with an average price to earnings (P/E) multiple of 17.95, went as high as 28.59, and bottomed out at 10.10. Using EPS estimates of $2.88 for 2023 and KMX recent P/E history, we arrive at the following potential price points:

  • Low P/E: $29.09
  • Average P/E: $51.41
  • High P/E: $81.48

Doing the same exercise for 2024’s earnings estimate of $3.12 delivers the following possible price targets:

  • Low P/E: $31.51
  • Average P/E: $55.69
  • High P/E: $88.26

Overall: In our opinion, CarMax President and CEO William Nash might be taking a long-term view. Based on used car market trends, rising interest rates, and economic uncertainty, we agree with Nash’s sentiment that what happens in the year ahead is a “guess” at this point. Nonetheless, Nash’s change of heart hints that he sees value in KMX shares in this price range.

Investors looking to follow the CEO’s lead should have a time horizon of at least two years and above-average risk tolerance. In our opinion, it’s likely to be a bumpy ride for KMX shares as market conditions could worsen before they get better.


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