Tuesday, Credit Suisse upgraded CarMax Inc. (KMX) shares to Neutral from Underperform and increased its price target to $23 from $15.
Analyst Balter upgraded the stock to Neutral, believing that risk/reward is balanced over the next 12 months. While the analyst projects above-consensus EPS in 2010, slowing EPS growth due to tough comparisons may keep the shares range-bound.
The analyst's higher than consensus estimate is based on two factors. Using the analyst's proprietary new/used car demand regression model, he believes that used car sales will be higher than what the current consensus appears to embed. The analyst believes that the higher volume combined with flat gross margins will offset higher SG&A leading to his estimate of $1.20.
The analyst noted that longer-term, the KMX story possesses among the best growth potential in Hardlines. In the analyst's view, the combination of a long growth runway, sound business model and widening competitive advantage make KMX one of the most intriguing names in Hardlines.
The analyst said that as new store growth eventually resumes, KMX should be capable of generating consistent high-teens EPS growth. As such, the analyst believes that KMX should be a fixture on investors' longer-term radars, and would remain alert for more compelling entry points.
Currently, KMX is up $0.56 or 2.75% and trading at $20.89.
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