CarMax (KMX) will need to reassess how it positions itself in a used-vehicle market that has changed significantly over the past decade, Truist Securities said in a Thursday note, adding that competition from online platforms and traditional dealers has intensified.
The brokerage said fiscal Q3 results were largely in line with expectations, with used-unit comparable sales declining 9%, slightly better than Truist's 10% estimate.
Truist said the softer trends reflect share losses driven by rapid growth at online rivals such as Carvana (CVNA) and by increasingly sophisticated traditional dealers that appeal to customers who have already narrowed their vehicle choices.
The firm added that CarMax plans to increase price and advertising investments to improve competitiveness, moves that could pressure earnings more than the company has modeled.
While potentially onerous, the brokerage said such investments are necessary because competition in the used-vehicle market has evolved faster than CarMax's business model.
Truist also noted that the search for a permanent chief executive is ongoing, adding that a new management team could provide a fresh perspective and act as a potential catalyst as the company reassesses its strategy.
The firm raised its price target on CarMax to $37 from $35 and maintained its hold rating.
Shares of CarMax were down more than 3% in recent trading.
Price: 39.75, Change: -1.32, Percent Change: -3.21
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