CarMax, Inc. KMX, the largest retailer of used vehicles in the United States, is set to gain from its extensive footprint, strategic buyout and investor-friendly moves. However, reciprocal tariffs and a stretched balance sheet remain a concern.
Let’s see why you should retain this Zacks Rank #3 (Hold) stock in your portfolio.
Strategic Buyout & Omnichannel Initiative to Aid CarMax
CarMax is the leading used car retailer in the United States. The company’s extensive nationwide footprint and logistics network provide it with a competitive advantage. CarMax is saving time and money by building more reconditioning centers near where the cars are sold. This helps get cars to stores faster and more efficiently and these savings will likely grow over time.
CarMax is riding high on strategic buyouts and collaborations. The acquisition of Edmunds has bolstered its position in the used auto market, enhancing digital capabilities and technology expertise. The collaboration with Recurrent provides unique insights into used EV batteries, reinforcing CarMax's leadership in the used EV sales sector.
Continued focus on omnichannel initiatives is set to fuel the company’s long-term efficiencies. CarMax's online appraisal tool, a key component of its omnichannel capabilities, is driving vehicle purchases and wholesale sales. MaxOffer, featuring fully digital instant offers, is expected to drive higher volumes over time. Efforts to leverage data science, automation and AI to improve efficiency and effectiveness within customer experience centers are likely to contribute to positive results.
Investor-friendly moves spark optimism. CarMax repurchased $180 million worth of shares in the second quarter of fiscal 2026. In fiscal 2025, KMX bought back 5.5 million shares. At the end of the second quarter of fiscal 2026, CarMax had $1.56 billion remaining in repurchase authorization.
Stretched Balance Sheet, Reciprocal Tariff to Ail KMX
CarMax plans to ramp up marketing efforts to back its new brand positioning, making it a key area of investment. The company anticipates higher marketing spend per unit in the second half of the year, especially in the third quarter, to properly support the brand’s relaunch.
CarMax’s stretched balance sheet plays a spoilsport. As of Aug. 31, 2025, the company had cash/cash equivalents and long-term debt of $540.4 million and $1.37 billion, respectively. Its long-term debt-to-capital ratio stands at 0.74, higher than the auto sector's 0.19. The elevated leverage of the firm makes it difficult for it to tap growth opportunities and restricts its financial flexibility. The company’s times interest earned ratio of 8.2 is lower than the auto sector’s 23.13.
The reciprocal tariffs imposed by the Trump administration on imports could affect the supply and cost of auto parts, vehicles or steel used in building new facilities, potentially harming KMX’s operations. These tariffs may also significantly reduce the availability of newer used vehicles, as automakers produce fewer new cars and consumers hold onto their vehicles longer. As a result, KMX may face higher costs to acquire used inventory and lower profit margins on sales.
Automotive retail is highly competitive and fragmented. CarMax faces competition from traditional dealers, online platforms and private sellers, all offering similar vehicles at similar prices. Franchised new car dealers may have an edge with certified pre-owned programs. The rise of online car buying and well-funded e-commerce entrants with larger inventories and better digital experiences could pressure KMX’s margins and business model. Failing to respond effectively may significantly impact the company’s sales and operations.
Stocks to Consider
Some better-ranked stocks in the auto space are China Yuchai International Limited CYD, Dorman Products, Inc. DORM and PHINIA Inc. PHIN. While CYD sports a Zacks Rank #1 (Strong Buy), DORM and PHIN carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CYD’s 2025 sales and earnings implies year-over-year growth of 54.1% and 87.7%, respectively. EPS estimates for 2025 have improved 58 cents in the past 60 days.
The Zacks Consensus Estimate for DORM’s 2025 sales and earnings implies year-over-year growth of 7.9% and 22.7%, respectively. EPS estimates for 2025 and 2026 have improved 3 cents and 19 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for PHIN’s 2025 earnings implies year-over-year growth of 18.1%. EPS estimates for 2025 and 2026 have improved by 22 cents and 15 cents, respectively, in the past 60 days.
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CarMax, Inc. (KMX): Free Stock Analysis Report Dorman Products, Inc. (DORM): Free Stock Analysis Report China Yuchai International Limited (CYD): Free Stock Analysis Report PHINIA Inc. (PHIN): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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