CarMax shares fall on analysts adjustments

Shares of CarMax Inc. fell Monday, after a Deutsche Bank Securities analyst lowered his rating on the auto retailer, citing additional risks to the company's financial stability.

Shares of Richmond, Va.-based CarMax fell 8 percent, or $1.22, to $14.09 in afternoon trading.

Despite the company's better-than-expected fiscal first-quarter earnings reported last Friday, Deutsche Bank analyst Rod Lache downgraded CarMax to "Hold" from "Buy," stating the financial risks and rewards of the company are more balanced.

However, he raised his 2010 fiscal year estimate on CarMax to 57 cents a share from 38 cents, on his "belief that CarMax can sustain structurally higher gross margins."

Although Lache said gross margins on used vehicles will contribute to improved earnings, the company could suffer from continued low sales volumes and additional loan defaults.

William Blair & Co. upgraded CarMax to "Outperform" Monday, citing an increase in used car sales, despite a slumping auto sales environment.

William Blair Analyst Sharon Zackfia also raised her fiscal 2010 estimates on CarMax to 49 cents a share from 34 cents, based on improved comparable sales trends and "excellent execution during the economic downturn."

"We give CarMax management very high marks for its execution in a difficult environment," Zackfia wrote. "Moreover, it is all but certain that CarMax's competitive environment will become increasingly more favorable as many new car dealers shutter operations."

CarMax said Friday that its fiscal first-quarter profit fell 2.7 percent to $28.7 million, or 13 cents per share, in the three months ended May 31, down from $29.6 million, or 13 cents per share, a year earlier. Adjusted earnings were 22 cents a share, above analysts' estimates of 4 cents a share.