CarMax's Double Upgrade Could Signal a Bigger Turnaround

Key Points

• Bank of America upgraded CarMax from Underperform to Buy, citing FTC pricing enforcement and improving price competitiveness.
• CarMax's fiscal second-quarter revenue rose 19.5%, while diluted earnings per share increased 81.3% year over year.
• A Nov. 3 strategic update and December earnings report could help determine whether CarMax's turnaround has staying power.

CarMax Inc. NYSE: KMX operates in the used-car retail industry, where affordability pressures and elevated borrowing costs have weighed on consumers.

But the company recently received a bullish double upgrade from Bank of America, raising the possibility that its midyear rally could rev up again.

That’s a meaningful change in tone. Wall Street has largely treated the used car giant as a show-me story, with analysts waiting for proof that its omnichannel strategy could deliver consistent unit growth and better margins.

A double upgrade, which skips over a neutral rating entirely, signals that at least one major firm believes CarMax is making enough progress to justify a more bullish outlook.

CarMax Is Benefiting From an FTC Policy

The catalyst for CarMax comes down to transparency. In March, the Federal Trade Commission (FTC) warned 97 auto dealership groups about deceptive pricing practices, followed by additional guidance in September. For years, CarMax has been disadvantaged by posting an "all-in" price that was, on paper, higher than prices some competitors advertised without including mandatory fees.

But those additional fees could appear later in the buying process. Now the FTC is requiring dealers to list their all-in prices, which works to CarMax's advantage.

In other words, shoppers comparing listings online were often making an apples-to-oranges comparison. A competitor’s lower sticker price could look like the better deal until documentation fees, reconditioning charges, and other add-ons appeared at the closing table. CarMax’s no-haggle pricing, long one of its key brand differentiators, was being penalized for the very thing that made it consumer-friendly.

Used Car Market Tailwinds Are Hard to Ignore

It's a real story, but it's not new. So why now? The used car market has shown resilience in 2026, supported by demand from budget-conscious buyers. The same pressures that have impacted new car prices (tariffs, inflation, etc.) are making used vehicles more appealing. The gap between new and used cars is approximately $16,000, the widest it has ever been.

That gap pushes budget-conscious buyers who might otherwise have purchased a new vehicle into the used market. As the nation’s largest used car retailer, CarMax is well-positioned to capture a large share of that demand.

Plus, according to Mordor Intelligence, the U.S. used car market is valued at approximately $871 billion and could reach $980 billion by 2031. Even modest market share gains in a market that size can translate into significant revenue growth for a company with CarMax’s scale.

Second-Quarter Results Show the Thesis Is Working

CarMax's fiscal 2027 (FY2027) second-quarter earnings report provided encouraging evidence of its turnaround. The company reported revenue of $7.88 billion, which was up 19.5% year over year (YOY).

The earnings story was even stronger. CarMax delivered diluted earnings per share (EPS) of $1.16. That beat expectations by approximately 59% and came in over 81% higher YOY.

Investors should also keep an eye on CarMax Auto Finance (CAF), the company’s in-house lending arm. CAF contributes a meaningful share of CarMax’s profits, and its provision for loan losses offers a window into the financial health of the company’s customers. If credit quality holds up as more buyers shift to used vehicles, that would ease one of the risks that has weighed on the stock.

The company is expected to report Q3 FY2027 earnings on Dec. 17. Before then, CarMax will host a strategic update on Nov. 3, which Bank of America highlighted as a near-term catalyst. But for long-term investors, this may be a time to look at buying KMX on weakness. Between now and the next earnings report, the stock is likely to trade on broader sentiment toward consumer spending and interest rates, as well as management's strategic outlook, creating entry points for patient investors.

Is KMX Ready for a Second Act?

It's not like investors ignored the FTC action. The KMX share price is up around 35% year-to-date. However, that includes a drop of over 17% since hitting its 52-week high in August.

The question for investors is whether they are losing confidence in the stock or if this is just a healthy pullback. The technicals signal more of the latter. The relative strength index (RSI) hit an oversold level near 29 on Oct. 14, and investors rushed in to provide support.

The rebound confirms support at a level the stock reached in June. That was also a level that acted as resistance at two other points in 2026. When former resistance becomes support, technical analysts generally read it as a sign that buyers are willing to defend that price, which can set the stage for the next leg higher.

Some analysts are coming around to the current price action. The CarMax analyst forecasts on MarketBeat have 19 analysts giving KMX a consensus Hold rating with a price target of $57.85.

In addition to Bank of America's Oct. 15 double upgrade from Underperform to Buy, which included a price-target increase from $50 to $65, UBS Group set a $65 price target on CarMax.

Consensus price targets also tend to lag fresh upgrades. If more analysts follow Bank of America’s lead, the consensus target could move higher in the coming weeks.