CarMax, the largest used-car retailer in the United States, delivered fiscal second-quarter results that beat Wall Street's expectations, and that was enough to win over at least one major investment bank. RBC Capital Markets raised its price target on the stock to $56, up from a previous level, after the company reported operating revenue of $7.88 billion—a 20% jump from the same period a year earlier.
The earnings beat was even more striking on the bottom line. CarMax reported earnings of $1.16 per share, nearly double the $0.64 it earned in the year-ago quarter. That kind of improvement, driven by stronger sales and tighter cost control, caught the attention of RBC analysts, who also lifted their forecasts for the company's future years.
Why the buyback matters
Perhaps the most significant signal in CarMax's report was the resumption of its share repurchase program. Companies often pause buybacks during uncertain times to preserve cash, so restarting them is a sign that management feels more confident about the business's financial footing.
Share buybacks reduce the number of shares outstanding, which can boost earnings per share even if net income stays flat. For investors, that can make a stock look more attractive on a per-share basis. RBC specifically highlighted CarMax's cash generation as a key reason it can lean back into repurchases without straining its balance sheet.
RBC also raised its adjusted earnings estimates for the coming years, now penciling in $3.32 per share for fiscal 2027 and $3.76 for fiscal 2028. Those figures suggest the bank expects CarMax's recovery to be durable, not just a one-quarter blip.
The omnichannel advantage
RBC pointed to CarMax's omnichannel model as a competitive strength. That model blends online shopping with physical dealerships, letting customers browse inventory, get financing, and even complete purchases digitally, while still having the option to visit a store. This approach has helped CarMax reach a wider customer base and streamline its operations, though it also requires significant investment in technology and logistics.
In a used-car market that has been volatile—with prices swinging as supply chains normalized and interest rates rose—CarMax's ability to generate cash and manage inventory has been closely watched. The company's results suggest that its strategy is paying off, at least for now.
What it means for investors
For everyday investors, the key takeaway is that CarMax is showing signs of a solid recovery. The earnings beat and the buyback restart are both positive signals, and RBC's price target hike reflects growing confidence among analysts.
However, it's worth remembering that a price target is just one analyst's opinion, not a guarantee. The stock could still be affected by broader economic factors, such as interest rates, consumer confidence, and the health of the job market—all of which influence how willing people are to buy big-ticket items like used cars.
Investors should also consider that CarMax operates in a cyclical industry. When the economy slows, used-car sales often dip, and when it recovers, they bounce back. The company's ability to navigate those cycles, while investing in its omnichannel platform, will be crucial to its long-term performance.
In the near term, the market will likely watch for continued strength in sales and whether CarMax can maintain its margin improvements. The resumption of buybacks is a good sign, but sustained cash flow will be needed to keep that program going.
As always, it's wise to look at the broader picture. CarMax's results come at a time when global markets are dealing with mixed economic signals, and consumer spending remains a key variable. For those considering an investment in CarMax, the company's fundamentals are improving, but the road ahead is not without potential bumps.
