Intrinsic value of CarMax Inc - KMX

Previous Close

$85.64

  Intrinsic Value

$24.98

stock screener

  Rating & Target

str. sell

-71%

Previous close

$85.64

 
Intrinsic value

$24.98

 
Up/down potential

-71%

 
Rating

str. sell

We calculate the intrinsic value of KMX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.60
  4.64
  4.68
  4.71
  4.74
  4.76
  4.79
  4.81
  4.83
  4.85
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
Revenue, $m
  17,908
  18,738
  19,615
  20,538
  21,511
  22,536
  23,615
  24,750
  25,945
  27,202
  28,525
  29,915
  31,377
  32,914
  34,529
  36,227
  38,012
  39,887
  41,858
  43,928
  46,103
  48,388
  50,788
  53,310
  55,958
  58,740
  61,662
  64,730
  67,953
  71,338
Variable operating expenses, $m
  16,708
  17,483
  18,300
  19,162
  20,070
  21,026
  22,033
  23,092
  24,207
  25,380
  26,613
  27,911
  29,275
  30,709
  32,216
  33,800
  35,465
  37,215
  39,053
  40,985
  43,014
  45,146
  47,385
  49,738
  52,209
  54,804
  57,530
  60,394
  63,401
  66,559
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  16,708
  17,483
  18,300
  19,162
  20,070
  21,026
  22,033
  23,092
  24,207
  25,380
  26,613
  27,911
  29,275
  30,709
  32,216
  33,800
  35,465
  37,215
  39,053
  40,985
  43,014
  45,146
  47,385
  49,738
  52,209
  54,804
  57,530
  60,394
  63,401
  66,559
Operating income, $m
  1,200
  1,255
  1,314
  1,376
  1,441
  1,510
  1,582
  1,658
  1,738
  1,823
  1,911
  2,004
  2,102
  2,205
  2,313
  2,427
  2,547
  2,672
  2,804
  2,943
  3,089
  3,242
  3,403
  3,572
  3,749
  3,936
  4,131
  4,337
  4,553
  4,780
EBITDA, $m
  1,388
  1,452
  1,520
  1,591
  1,667
  1,746
  1,830
  1,918
  2,010
  2,108
  2,210
  2,318
  2,431
  2,550
  2,676
  2,807
  2,945
  3,091
  3,243
  3,404
  3,572
  3,749
  3,935
  4,131
  4,336
  4,552
  4,778
  5,016
  5,265
  5,528
Interest expense (income), $m
  55
  708
  743
  780
  820
  861
  904
  950
  998
  1,049
  1,102
  1,159
  1,218
  1,280
  1,345
  1,414
  1,486
  1,562
  1,642
  1,725
  1,813
  1,906
  2,003
  2,105
  2,212
  2,325
  2,443
  2,568
  2,698
  2,835
  2,979
Earnings before tax, $m
  491
  512
  534
  556
  580
  606
  632
  660
  689
  720
  753
  787
  822
  860
  900
  941
  985
  1,031
  1,079
  1,130
  1,183
  1,239
  1,298
  1,359
  1,424
  1,492
  1,564
  1,639
  1,718
  1,800
Tax expense, $m
  133
  138
  144
  150
  157
  164
  171
  178
  186
  194
  203
  212
  222
  232
  243
  254
  266
  278
  291
  305
  319
  335
  350
  367
  385
  403
  422
  442
  464
  486
Net income, $m
  359
  374
  390
  406
  424
  442
  461
  482
  503
  526
  549
  574
  600
  628
  657
  687
  719
  753
  788
  825
  864
  904
  947
  992
  1,040
  1,089
  1,141
  1,196
  1,254
  1,314

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  18,292
  19,140
  20,035
  20,979
  21,973
  23,019
  24,121
  25,281
  26,502
  27,786
  29,136
  30,557
  32,050
  33,620
  35,270
  37,005
  38,827
  40,743
  42,755
  44,870
  47,092
  49,426
  51,878
  54,453
  57,158
  60,000
  62,984
  66,119
  69,411
  72,869
Adjusted assets (=assets-cash), $m
  18,292
  19,140
  20,035
  20,979
  21,973
  23,019
  24,121
  25,281
  26,502
  27,786
  29,136
  30,557
  32,050
  33,620
  35,270
  37,005
  38,827
  40,743
  42,755
  44,870
  47,092
  49,426
  51,878
  54,453
  57,158
  60,000
  62,984
  66,119
  69,411
  72,869
Revenue / Adjusted assets
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
  0.979
Average production assets, $m
  2,704
  2,830
  2,962
  3,101
  3,248
  3,403
  3,566
  3,737
  3,918
  4,108
  4,307
  4,517
  4,738
  4,970
  5,214
  5,470
  5,740
  6,023
  6,321
  6,633
  6,962
  7,307
  7,669
  8,050
  8,450
  8,870
  9,311
  9,774
  10,261
  10,772
Working capital, $m
  1,898
  1,986
  2,079
  2,177
  2,280
  2,389
  2,503
  2,624
  2,750
  2,883
  3,024
  3,171
  3,326
  3,489
  3,660
  3,840
  4,029
  4,228
  4,437
  4,656
  4,887
  5,129
  5,384
  5,651
  5,932
  6,226
  6,536
  6,861
  7,203
  7,562
Total debt, $m
  13,765
  14,453
  15,178
  15,942
  16,747
  17,595
  18,487
  19,427
  20,415
  21,455
  22,549
  23,700
  24,909
  26,181
  27,518
  28,923
  30,399
  31,951
  33,581
  35,294
  37,093
  38,984
  40,970
  43,056
  45,247
  47,549
  49,966
  52,505
  55,172
  57,972
Total liabilities, $m
  14,816
  15,504
  16,229
  16,993
  17,798
  18,646
  19,538
  20,478
  21,466
  22,507
  23,600
  24,751
  25,960
  27,232
  28,569
  29,974
  31,450
  33,002
  34,632
  36,345
  38,144
  40,035
  42,021
  44,107
  46,298
  48,600
  51,017
  53,556
  56,223
  59,024
Total equity, $m
  3,475
  3,637
  3,807
  3,986
  4,175
  4,374
  4,583
  4,803
  5,035
  5,279
  5,536
  5,806
  6,089
  6,388
  6,701
  7,031
  7,377
  7,741
  8,124
  8,525
  8,947
  9,391
  9,857
  10,346
  10,860
  11,400
  11,967
  12,563
  13,188
  13,845
Total liabilities and equity, $m
  18,291
  19,141
  20,036
  20,979
  21,973
  23,020
  24,121
  25,281
  26,501
  27,786
  29,136
  30,557
  32,049
  33,620
  35,270
  37,005
  38,827
  40,743
  42,756
  44,870
  47,091
  49,426
  51,878
  54,453
  57,158
  60,000
  62,984
  66,119
  69,411
  72,869
Debt-to-equity ratio
  3.960
  3.970
  3.990
  4.000
  4.010
  4.020
  4.030
  4.040
  4.050
  4.060
  4.070
  4.080
  4.090
  4.100
  4.110
  4.110
  4.120
  4.130
  4.130
  4.140
  4.150
  4.150
  4.160
  4.160
  4.170
  4.170
  4.180
  4.180
  4.180
  4.190
Adjusted equity ratio
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  359
  374
  390
  406
  424
  442
  461
  482
  503
  526
  549
  574
  600
  628
  657
  687
  719
  753
  788
  825
  864
  904
  947
  992
  1,040
  1,089
  1,141
  1,196
  1,254
  1,314
Depreciation, amort., depletion, $m
  188
  196
  206
  215
  226
  236
  248
  260
  272
  285
  299
  314
  329
  345
  362
  380
  399
  418
  439
  461
  483
  507
  533
  559
  587
  616
  647
  679
  713
  748
Funds from operations, $m
  547
  570
  595
  622
  649
  678
  709
  741
  775
  811
  848
  888
  929
  973
  1,019
  1,067
  1,118
  1,171
  1,227
  1,285
  1,347
  1,412
  1,480
  1,551
  1,626
  1,705
  1,788
  1,875
  1,966
  2,062
Change in working capital, $m
  83
  88
  93
  98
  103
  109
  114
  120
  127
  133
  140
  147
  155
  163
  171
  180
  189
  199
  209
  219
  231
  242
  254
  267
  281
  295
  310
  325
  342
  359
Cash from operations, $m
  463
  482
  502
  524
  546
  570
  595
  621
  649
  678
  708
  741
  774
  810
  848
  887
  928
  972
  1,018
  1,066
  1,117
  1,170
  1,225
  1,284
  1,346
  1,410
  1,478
  1,550
  1,625
  1,704
Maintenance CAPEX, $m
  -180
  -188
  -196
  -206
  -215
  -226
  -236
  -248
  -260
  -272
  -285
  -299
  -314
  -329
  -345
  -362
  -380
  -399
  -418
  -439
  -461
  -483
  -507
  -533
  -559
  -587
  -616
  -647
  -679
  -713
New CAPEX, $m
  -111
  -125
  -132
  -139
  -147
  -155
  -163
  -171
  -180
  -190
  -200
  -210
  -221
  -232
  -244
  -256
  -269
  -283
  -298
  -313
  -328
  -345
  -362
  -381
  -400
  -420
  -441
  -463
  -487
  -511
Cash from investing activities, $m
  -291
  -313
  -328
  -345
  -362
  -381
  -399
  -419
  -440
  -462
  -485
  -509
  -535
  -561
  -589
  -618
  -649
  -682
  -716
  -752
  -789
  -828
  -869
  -914
  -959
  -1,007
  -1,057
  -1,110
  -1,166
  -1,224
Free cash flow, $m
  172
  169
  174
  179
  184
  189
  195
  202
  209
  216
  223
  231
  240
  249
  259
  269
  279
  290
  302
  314
  327
  341
  356
  371
  387
  404
  421
  440
  459
  480
Issuance/(repayment) of debt, $m
  647
  687
  725
  764
  805
  848
  893
  940
  989
  1,040
  1,094
  1,150
  1,210
  1,272
  1,337
  1,405
  1,476
  1,552
  1,630
  1,713
  1,800
  1,891
  1,986
  2,086
  2,191
  2,302
  2,417
  2,539
  2,667
  2,801
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  647
  687
  725
  764
  805
  848
  893
  940
  989
  1,040
  1,094
  1,150
  1,210
  1,272
  1,337
  1,405
  1,476
  1,552
  1,630
  1,713
  1,800
  1,891
  1,986
  2,086
  2,191
  2,302
  2,417
  2,539
  2,667
  2,801
Total cash flow (excl. dividends), $m
  818
  857
  899
  943
  989
  1,037
  1,088
  1,141
  1,197
  1,256
  1,317
  1,382
  1,450
  1,521
  1,595
  1,673
  1,756
  1,842
  1,932
  2,027
  2,127
  2,232
  2,342
  2,457
  2,578
  2,705
  2,839
  2,979
  3,126
  3,280
Retained Cash Flow (-), $m
  -159
  -161
  -170
  -179
  -189
  -199
  -209
  -220
  -232
  -244
  -257
  -270
  -284
  -298
  -314
  -330
  -346
  -364
  -382
  -402
  -422
  -443
  -466
  -489
  -514
  -540
  -567
  -596
  -626
  -657
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  660
  695
  729
  763
  800
  838
  879
  921
  965
  1,012
  1,061
  1,112
  1,166
  1,222
  1,282
  1,344
  1,409
  1,478
  1,550
  1,626
  1,705
  1,788
  1,876
  1,968
  2,064
  2,165
  2,272
  2,383
  2,500
  2,623
Discount rate, %
  12.60
  13.23
  13.89
  14.59
  15.32
  16.08
  16.89
  17.73
  18.62
  19.55
  20.52
  21.55
  22.63
  23.76
  24.95
  26.19
  27.50
  28.88
  30.32
  31.84
  33.43
  35.10
  36.86
  38.70
  40.64
  42.67
  44.80
  47.04
  49.39
  51.86
PV of cash for distribution, $m
  586
  542
  493
  443
  392
  343
  295
  250
  208
  170
  136
  107
  82
  62
  45
  32
  23
  15
  10
  6
  4
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

CarMax, Inc. (CarMax) is a holding company. The Company is a retailer of used vehicles. The Company operates through two segments: CarMax Sales Operations and CarMax Auto Finance (CAF). The Company's CarMax Sales Operations segment consists of all aspects of its auto merchandising and service operations, excluding financing provided by CAF. The Company's CAF segment consists of its own finance operation that provides vehicle financing through CarMax stores. The Company operates approximately 160 used car stores in over 70 metropolitan markets. The Company's products and services include retail merchandising, wholesale auctions, extended protection plans (EPPs), reconditioning and service, and customer credit. The Company's CarMax Sales Operations segment sells used vehicles, purchases used vehicles from customers and other sources, sells related products and services, and arranges financing options for customers. CAF operates in the auto finance sector of the consumer finance market.

FINANCIAL RATIOS  of  CarMax Inc (KMX)

Valuation Ratios
P/E Ratio 25.5
Price to Sales 1
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow -34.1
Price to Free Cash Flow -18
Growth Rates
Sales Growth Rate 4.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 32.3%
Cap. Spend. - 3 Yr. Gr. Rate 6.2%
Financial Strength
Quick Ratio 0
Current Ratio 0.4
LT Debt to Equity 380.4%
Total Debt to Equity 391.4%
Interest Coverage 19
Management Effectiveness
Return On Assets 4.3%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 4.4%
Ret/ On T. Cap. - 3 Yr. Avg. 4.8%
Return On Equity 20.9%
Return On Equity - 3 Yr. Avg. 19.9%
Asset Turnover 1
Profitability Ratios
Gross Margin 13.8%
Gross Margin - 3 Yr. Avg. 13.4%
EBITDA Margin 7.7%
EBITDA Margin - 3 Yr. Avg. 7.8%
Operating Margin 6.3%
Oper. Margin - 3 Yr. Avg. 6.6%
Pre-Tax Margin 6.3%
Pre-Tax Margin - 3 Yr. Avg. 6.6%
Net Profit Margin 3.9%
Net Profit Margin - 3 Yr. Avg. 4.1%
Effective Tax Rate 37.7%
Eff/ Tax Rate - 3 Yr. Avg. 38.1%
Payout Ratio 0%

KMX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KMX stock intrinsic value calculation we used $17120 million for the last fiscal year's total revenue generated by CarMax Inc. The default revenue input number comes from 0001 income statement of CarMax Inc. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our KMX stock valuation model: a) initial revenue growth rate of 4.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 12.6%, whose default value for KMX is calculated based on our internal credit rating of CarMax Inc, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of CarMax Inc.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of KMX stock the variable cost ratio is equal to 93.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for KMX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for CarMax Inc.

Corporate tax rate of 27% is the nominal tax rate for CarMax Inc. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the KMX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for KMX are equal to 15.1%.

Life of production assets of 14.4 years is the average useful life of capital assets used in CarMax Inc operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for KMX is equal to 10.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3316.849 million for CarMax Inc - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 170.160 million for CarMax Inc is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of CarMax Inc at the current share price and the inputted number of shares is $14.6 billion.

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