No. of Recommendations: 3
https://finance.yahoo.com/m/77c87e7f-9c4c-3d8d-81b...Highlights:
CarMax's share of the nationwide age 0-10 year old used vehicle market remained at 4.0% in calendar year 2022. Gains in the first half of the year were offset in the back half, reflecting our focus on achieving profitable market share gains.
Net revenues were $5.7 billion, down 25.6% compared with the prior year fourth quarter. For the fiscal year, net revenues decreased 6.9% to $29.7 billion.
Retail used unit sales declined 12.6% in the fourth quarter, and comparable store used unit sales declined 14.1%; wholesale units declined 19.3% in the fourth quarter.
Delivered robust margins in retail and wholesale; gross profit per retail unit of $2,277, an increase of $82 per unit versus last year's fourth quarter, and gross profit per wholesale unit of $1,187, relatively flat compared to the prior year's record.
SG&A of $572.8 million decreased 7.7% or $48.1 million from last year's fourth quarter as a result of active cost management.
Bought 262,000 vehicles from consumers and dealers, down 22.5% versus last year's record fourth quarter and sequentially up 10.1% from this year's third quarter.
CarMax Auto Finance (CAF) income of $123.9 million, down 36.1% from the prior year fourth quarter due to compression in the net interest margin percentage and a higher provision for loan losses, partially offset by an increase in average managed receivables.
Net earnings per diluted share of $0.44, down from $0.98 a year ago. For the fiscal year, net earnings per diluted share declined 56.5% to $3.03.
No. of Recommendations: 4
I said this in March:
Last quarter, they sold 298,807 cars, 180,050 of them retail (down 20.8% year over year) and 118,757 of them wholesale (down 36.7%). Very roughly, they make $2000 per retail sale, and $1000 per car per wholesale sale, but both of those numbers have been under pressure as well.
I think it's good to keep in mind the large picture, which is that they are under no threat of insolvency (something that some of their competitors, like Carvana, would like to be able to say), and are very likely to keep slowly taking market share (currently about 4%) in a used car business where they are already #1 but with a long runway for increasing their share. They were making about $5 per share in the year prior to COVID, had a brief spike to $7 eps before problems with the new and used car markets and interest rate increases added some turbulence, but I think it is quite likely that they will be back to that $5-7 range as soon as markets settle down, so their current sub-$70 price is more than reasonable. If 2022 Q4 shows bad results, we may get another drop in the share prices, but that would represent an opportunity, absent some material change to their business.
So it turns out that in Q4, their results were... pretty good. They made only 44c per share, compared to 99c a year ago, but the market likes the result because 'expectations' were apparently only 20c, so all is forgiven. No, seriously, who knows what the market will think and do, but from a value perspective, they have shown that they can easily trim their sails and return to profitability, at the expense of growing sales, and they are doing that. They sold 15.5% less cars than the year ago quarter, with average vehicle sales price was down about 9%, but they made $2,277 per retail sale, up a bit from a year ago, with wholesale gross profit at $1187, flat from a year ago, demonstrating that what is important is not the sale price, it is how much Carmax can take out of each transaction. And they cut SG&A costs by $573m. The finance side took a $98m allowance for loan losses, compared to $54m last year, which is bad, but small, and not as bad as one might have worried about, given high interest rates, and a collapse in used car prices, so that defaults recoveries are not as good as they might have been.
All in all, I'm happy enough with the results to keep my 4% stake, as I think a full recovery to prior levels of profitability, in the next 12-18 months, still seems perfectly plausible.
dtb
No. of Recommendations: 2
Valueline estimates that KMX's EPS in the years 2026-2028 will be $4.40.
Also, the median P/E of KMX in the last 10 years has been 18. If we assume that multiple to apply in 2026-2028 (which, in my view is a very optimistic assumption, given the growth rate of EPS from now to then), the expected price then will be $79.20, as against a current price of $74.66.
Is anyone else concerned about this issue?
No. of Recommendations: 2
Valueline estimates that KMX's EPS in the years 2026-2028 will be $4.40.
Also, the median P/E of KMX in the last 10 years has been 18. If we assume that multiple to apply in 2026-2028 (which, in my view is a very optimistic assumption, given the growth rate of EPS from now to then), the expected price then will be $79.20, as against a current price of $74.66.Here are their earnings for 2016-2019, the last 7 years before the 2020 panicdemic:
Year Profit Sh o/s
2013 $493m 228m
2014 $597m 216m
2015 $623m 206m
2016 $627m 190m
2017 $664m 184m
2018 $842m 176m
2019 $888m 165m
(2 years of great profits, not sustainable, let's ignore them)
2022 $485m 159m
Q12023 $69m 158m
What is a reasonable projection of their profit level in 3-5 years? If it is $4.40 per share, and if they have 130m shares outstanding in 4 years (2027), that would be $572m, or the same levels of profits they had 13 years prior. That is a possible outcome, but in the absence of any new structural problems affecting their business, and given their almost clockwork growth over the last 10-20 years, it strikes me as a very pessimistic projection. I think $1000m in profit is a lot more likely, and that mean their current market cap of $11.8b is about 12 times earnings 4 years from now. If they make $1500m in earnings in 4 years (on track with their pre-Covid trajectory), their current price would be just under 8 times earnings.
It's not a steal, by any means, but with strong growth, I think their median multiple of 18x earnings is very reasonable, and the company might well be worth $18b in 4 years, giving a return of 11% a year. Stronger growth is even more likely, I think, and share repurchases at today's good price (although repurchases are currently suspended) could make this a little better. I don't have a lot of investments where I am more confident of an 11%+ return.
Regards, DTB
