Morgan Stanley Downgrades CarMax on Execution and Leadership Concerns
Morgan Stanley has downgraded CarMax (NYSE: KMX) from Overweight to Equal-Weight and sharply reduced its price target to $35 from $56, citing ongoing execution challenges and leadership uncertainty during a critical transition period.
In its latest research note, analyst Daniela Haigian described the move as “the first step toward a strategic pivot” following a steep 60% year-to-date stock decline. However, she cautioned that CarMax shares are likely to remain range-bound until investors gain confidence in the company’s new CEO and revised strategy.
Morgan Stanley noted that its previous bullish stance assumed the company’s challenges were already priced in — “but that was not the case.” The firm highlighted weaker-than-expected sales volumes, down 10% year-over-year compared with a 6% decline last quarter and consensus expectations of -3%. Additionally, steeper depreciation curves have continued to pressure wholesale margins, suggesting that operational performance has worsened instead of improving.
Haigian pointed to three main headwinds: intense competition, consumer affordability issues, and execution problems specific to CarMax’s operations. She added that the Board’s ongoing CEO search signals a clear “sense of urgency for change.”
Morgan Stanley said it is seeking a leader capable of strengthening CarMax’s brand visibility, enhancing its digital buying experience, and driving a renewed omnichannel strategy. Despite the downgrade, the bank emphasized that CarMax remains a strong brand with valuable assets, though it currently favors Carvana, which continues to deliver over 40% year-on-year growth.
