Morningstar

CarMax Keeps Rolling Along

We’re raising our fair value estimate of the narrow-moat firm.

Securities In This Article
CarMax Inc
(KMX)

Hurricane Harvey in Houston cost CarMax about $1 million after insurance deductibles, mostly from 1,000 lost vehicles, but overall company comparable-store used-vehicle unit sales still rose 5.3% year over year and all six stores affected by the storm have reopened. Management did not give much detail on Hurricane Irma’s impact beyond saying it closed 28 stores, mostly in Georgia and Florida; it will give more detail Dec. 21 when it reports the fiscal third quarter. Management indicated it is not worried about being able to meet a surge in demand after the storms and its IT systems are more sophisticated than after Hurricane Katrina 12 years ago. Buyers are also trained to look for flood damage during the appraisal process; CarMax will sell vehicles with flood damage into salvage auctions to protect itself from liability.

The online appraisal process program is now expanding from Charlotte to the Midwest. We think anything that makes the buying experience easier for consumers and more like buying anything else online is the right strategy. Some states restrict retailers from delivering a vehicle to a customer, as opposed to in-store pickup, so management over time will seek to provide more improvements in delivery for however the customer wants it within the laws of each state. Home delivery is in Charlotte for now but should expand over time.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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