An 11% drop in gasoline prices and a 0.4 % drop in used vehicle prices in July could drive the sales of used cars. Moreover, since gas prices still remain elevated and the cost of electric vehicles has increased significantly year-over-year, demand for used electric cars is soaring, with consumers looking for saving opportunities amid concerns over a potential recession.

Popular used vehicles retailer CarMax (KMX) doesn’t look well-positioned to capitalize on the industry tailwinds given its weak financials. While KMX’s net revenues increased year-over-year in its fiscal first quarter of 2023 (ended May 31, 2022), its gross profit, net earnings, and earnings per share have all declined from the year-ago levels.

Moreover, analysts expect the company’s EPS to decrease 19.4% year-over-year to $5.62 in fiscal 2023. Its EPS is expected to decline 16.3% in the current quarter and 19% in the following quarter. The stock has lost 20% in price year-to-date and is rated Sell in our proprietary POWR Ratings system.

Thus, it could be wise to consider investing in fundamentally sound used car stocks, AutoNation Inc.(AN), Cars.com Inc. (CARS), and Rush Enterprises, Inc. (RUSHA), instead. These stocks are rated Buy or Strong Buy in our rating system.

AutoNation Inc. (AN)

AN is an automotive retailer. The company operates through three segments: Domestic; Import; and Premium Luxury. Its offerings include new and used vehicles, parts, automotive repair and maintenance services, and automotive finance and insurance products.

On July 26, AN announced its partnership with Autonomy, the largest EV subscription company in the U.S., to support the latter expansion into other brands and geographies by leveraging the former’s network. AN is expected to get additional business through vehicle preparation, delivery, maintenance, repair, and reconditioning services for the growing fleet of subscription vehicles.

During the second quarter of 2022, AN purchased 3.7 million shares of common stock for an aggregate purchase price of $404 million.

In the second quarter ended June 30, 2022, AN’s gross profit increased 3% year-over-year to $1.36 billion. Its operating income grew 5% from the year-ago value to $558.1 million, and its adjusted EPS rose 35.6% from the prior-year period to $6.47.

The consensus EPS estimate of $24.67 for 2022 represents a 35.9% improvement year-over-year. The consensus revenue estimate of $27.52 billion for the current year represents a 6.5% increase from the previous year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

AN has gained 19.2% over the last six months and 8.2% over the past year to close the last trading session at $132.49.

It is no surprise that AN has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

AN has a grade of A for Value and B for Growth and Quality. In the Auto Dealers & Rentals industry, it is ranked #2 out of 25 stocks.

To see additional POWR Ratings for Momentum, Stability, and Sentiment for AN, click here.

Cars.com Inc. (CARS)

CARS operates as a digital marketplace connecting automotive shoppers with sellers. Through its marketplace, dealer websites, and other digital products, it serves local car dealers, OEMs, and other national advertisers in the U.S.

In May, CARS launched Instant Offer, powered by Accu-Trade, acquired by CARS earlier this year. It would allow consumers to get a competitive cash offer from a local dealership. This offering has found traction among consumers and is expected to scale rapidly as the product goes nationwide.

For the second quarter ended June 30, 2022, CARS’ total revenues came in at $162.87 million, up 4.7% year-over-year. Its adjusted EBITDA rose 7.8% sequentially to $45.3 million. The company’s net income and earnings per share for the second quarter increased 27.8% and 33.3% over the previous quarter to $5.54 million and $0.08, respectively.

The consensus revenue estimate of $655.14 million for the fiscal year represents a 5.0% year-over-year increase. In addition, analysts expect CARS’ EPS for the year to increase 22.1% to $1.87. It has surpassed the consensus revenue estimates in three of the trailing four quarters.

Over the past year, the stock has gained 12.4% to close the last trading session at $14.10.

CARS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. It has an A grade for Growth and a B grade for Sentiment. CARS is ranked #8 in the Auto Dealers & Rentals industry. 

Click here to see the additional POWR Ratings for CARS (Quality, Momentum, Stability, and Value).

Rush Enterprises, Inc. (RUSHA)

RUSHA is an integrated retailer of commercial vehicles and related services. The company operates through the Truck Segment, which runs a network of dealerships named Rush Truck Center. Its offerings include aftermarket parts, maintenance services, financing, leasing, rental, and insurance products.

RUSHA’s revenue for the second quarter of 2022 ended June 30, increased 36.1% year-over-year to a record $1.79 billion. The company’s operating income rose 85.5% from the year ago-value to $135.02 million, while the Adjusted EBITDA for the same period increased 72.5% year-over-year to $ 491.21 million.

Furthermore, net income attributable to RUSHA came in at $110.22 million, up 89.9% year-over-year. Its earnings per share grew 92% from the prior-year period to a record $1.92.

RUSHA declared a cash dividend of $0.21 per share of Class A and Class B common stock on July 26.

Analysts expect RUSHA’s revenue for 2022 to increase 33.3% year-over-year to $6.83 billion. Also, Street expects the company’s EPS for the current year to grow 46.68% year-over-year to $6.12. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

Over the past year, RUSHA has gained 16.8% to close the last trading session at $52.78.

RUSHA’s stable outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. RUSHA has an A grade for Growth and a B grade for Value. In the same industry, it is ranked #3.

Click here to see the additional POWR Ratings for RUSHA (Momentum, Stability, Quality, and Sentiment).

AN shares were unchanged in premarket trading Wednesday. Year-to-date, AN has gained 13.38%, versus a -8.86% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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