Investing.com – Bank of America (NYSE:) (BofA) analysts favor AutoNation Inc (NYSE:) over AutoNation Inc (NYSE:). CarMax Inc. (NYSE:) in a research note on Thursday.
Supply conditions for used vehicles, especially late model used vehicles, remain challenging and this trend is expected to continue through 2025 and beyond. These dynamics will likely hamper CarMax’s same-store sales growth.
CarMax faces increasing competition from franchised dealers and Karvana Co (NYSE:), which makes the problem even worse.
Since volumetric leverage cannot be realized, CarMax also faces inflated costs. Unlike franchised dealers, CarMax has limited ability to compete in the complex used car market.
The company’s finance arm, CAF, is expected to witness weak earnings growth in the coming years due to tight securitization spreads, limited issuance growth and likely unsustainably low loan losses.
On the other hand, AutoNation is poised to benefit from an improving new vehicle sales cycle driven by pent-up demand and continue to generate strong cash flow. The firm is also likely to benefit from support from original equipment manufacturers (OEMs) from larger dealer groups, increased trade-in sales as new vehicle sales increase, increased customer share of wallet and effective cost management.
However, BofA analysts also highlight potential risks for AutoNation, including lower GPU counts as the situation normalizes and headwinds from SG&A cuts as gross revenues decline. Despite these challenges, AutoNation is expected to mitigate these hurdles through effective cost management.
For CarMax, BofA cut its estimates slightly to account for weaker-than-expected CAF collateral spreads on the latest ABS securitization.
The firm maintains its price target on CarMax at $50.