We attended KMX’s quarterly analyst event in Richmond on Jan. 16th, where we met with the CEO, new and old CFO, CMO, and other members of the C-Suite. Overall, we left the event more positive on KMX’s long-term prospects (2-5 years), but equally as cautious on the near-term setup for comps and expenses.
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Looking to 2020 we expect a slight deceleration to comps from 2019, but still see trends as healthy. We also see six potential swing factors that could alter this growth outlook. Given the recent sell-off in the space on weather and credit card data, we think these concerns are increasingly priced into the stocks and view the sector as having an attractive risk/return versus a more cyclical market at all-time highs.
KMX reported Q3 2019 with used-unit comps of +7.5% beating Cons. of 6.2%. Adjusted EPS of $1.04 missed Cons of $1.16 and our $1.12 even with a $0.04 benefit from investments as surging advertising, SBC, and a headwind in P&S weighed on EPS. Shares were down 6%.
Wolfe Research's Senior Hardlines & Internet Retail Analyst Chris Bottiglieri hosted a webcast to discuss what worked in 2019, an overview of the team's valuation regression, 10 themes to highlight for 2020, and more.
To help gear up for 2020 we analyzed 2019 performance, identified 10 key themes into 2020, analyzed post Q3 earnings reaction, and analyzed the key issue facing each stock under coverage into 2020.
ABG acquired Park Place a 17-franchise luxury dealership group in Texas at an 11.5x EV/EBITDA multiple before Floorplan Debt but after goodwill tax shield. Park Place has $1.9B of revenue and 4.2% EBITDA margins. The deal will add $1.00 - $1.25 in 9 months of accretion in 2020 as its expected to close March 2020. ABG shares were up 7%.
HD held its biennial analyst day, which largely reiterated the substance of its original 2017 plan. Contrary to historical precedent of beating and raising, HD cut its long-term targets, but we believe this was already expected. Shares were down approx. -2% throughout the day.
This AM (12/10/19), AZO printed 1Q20 results with SSS of 3.4% ahead of our 3.0% and Consensus’ 2.5%. EBIT was ahead of our estimate and EPS beat by 4.6%. (Exhibit 2). Shares were up 7.2%. See page 3 for thoughts on qtr.
ULTA reported 3Q19 earnings after the market close on 12/5. Comps of 3.2% were in-line with Consensus and below our 3.5% but we estimate ahead of buy side expectations (stock was up ~9% post market close). EPS of $2.25 was above Consensus’ $2.13 on better margins.
On 12/11, HD is hosting its biennial Analyst Day. Historically, while very informative, HD analyst days have had small impacts on the stock with performance of -1% to +1% versus the S&P but with generally better follow through over the +1 month (Exhibit 1). However, this time could be different as HD shares significantly underperformed the market over the past 45 days and there has been investor angst over 2020 growth and margins.
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