Rajat Gupta, a JPMorgan analyst, downgraded CarMax (NYSE) from Overweight to Neutral because he feels that the Street consensus was too high.

Analyst claims that FY23 forecasts need to be reset in a material way. Therefore, his updated estimates are now at Street-low (5.25).

Moreover, “building conviction on an inflection in growth next year is challenging amidst the worsening affordability backdrop, suggesting the stock is likely close to a near-term peak at current levels (~16x FY2 EPS of $6.25) with potential downside to $75 (~14x NTM EPS of $5.25) in the near-term,” Gupta said in a client note.

For these reasons, Gupta finds it hard to “recommend this trade anymore given the material cut needed to near-term estimates in a likely worsening affordability backdrop before it gets better.”

The analyst is more positive on KMX in case a mild near-term recession occurs due to the company’s better BS leverage and FCF support.

The new price target for shares is now $110.00, which is a drop from $135.00.

By Senad Karaahmetovic