CarMax (KMX) is at its "most price-competitive" in years, driven by cost cuts and the enforcement of price transparency on vehicle dealers by the US Federal Trade Commission, BofA Securities said in a Thursday note.
The company's fiscal Q2 used unit comparable store growth solidly beat public peers that received letters from the agency, BofA analysts said. This tailwind should have a "longer tail" due to the expected increased compliance of dealers and better perceived pricing by consumers, the analysts added.
CarMax attributed half of its improved price competitiveness to the Federal Trade Commission move, according to the note.
After removing its processing fees in May, CarMax has the potential to further invest in price to boost unit volumes while keeping gross profit per unit flat, the analysts said.
The firm anticipates the company's strategic update on Nov. 3 to be a near-term catalyst for the stock, and expects the company to outline new cost initiatives to sustain positive momentum as the other tailwinds fade, according to the note.
BofA upgraded the company's stock rating to buy from underperform and raised the price target to $65 per share from $50.
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