Why CarMax is A "Favorite" Stock at Oppenheimer

In a report published Friday, Oppenheimer analyst Brian Nagel maintained an Outperform rating on

with a price target of $77. CarMax's 1Q (May) results were hit by unfavorable weather and lumpy trends. "Market concerns of an underlying unfavorable turn at KMX seem overblown. Weather-related sales weakness at the chain typically proves transitory," analyst Brian Nagel mentioned. The company's 1Q EPS was up 13 percent to $0.86, from $0.76 in the year ago quarter. The used car unit comps in the period were up 4.9 percent, narrowly missing the upper end of street forecasts of 5-6 percent. CarMax's shares have declined by a little over 7 percent since the announcement of the company's 1Q performance. In the report Oppenheimer noted that results of a proprietary study revealed that "44 of 253 May "Prime" selling days at KMX stores located in the South-Central US were impacted by 0.5" or more rain YoY. Per our estimates, May showers in these markets likely lowered Q1 (May) used car unit comps by 60-120 bps." The used car unit comps for CarMax would ease in 2Q (August). "In Q2 (Aug.) 2014 used car unit comps at KMX rose just 0.2% vs. +3.4% in Q1'14 (May 2014). Current Street forecasts for a mid-single digit comp gain in Q2 (Aug.) imply a moderation of a few % pts. in two-year comp trends," the report added. CarMax's growth prospects are expected to be driven by its expansion potential, a broad-based strengthening in consumer demand for autos as recessionary pressures ease and its dominant online presence.