NEW YORK, April 2 Shares of CarMax Inc,
the biggest U.S. used car dealer, are vulnerable to a 20
percent decline if investors are unnerved by falling used
vehicle prices and weakening credit quality when it reports its
results, Barron's said on Sunday.
The company is scheduled to report fourth-quarter and fiscal
year ended Feb. 28, 2017 results on April 6.
CarMax's captive auto finance unit contributes about 40
percent of the company's operating income and could come under
pressure as defaults and delinquencies rise, the report said.
Last year, the company rolled out an online financing
initiative to help customers pre-qualify for a loan before a
store visit, hoping to improve customer conversion rates.
The economy is becoming less friendly to used-car buyers,
personal bankruptcies have ticked up in recent months and
interest rates are on the rise, meaning CarMax might find itself
underreserved for loan losses, according to Barron's.
"CarMax seems sure to continue to grow sales by opening new
stores but if the company encounters rude surprises in its loan
portfolios, and falling vehicle prices pinch margins, investors
could send the stock lower in its historical valuation range,"
the report said.
CarMax shares closed down 1.4 percent at $59.22 per share on
Friday and have fallen more than 8 percent so far this year.
(Reporting by Devika Krishna Kumar in New York; Editing by