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Why CarMax stock is soaring?

CarMax Helps Drive the S&P 500 Higher

Shares of CarMax(KMX) soared as much as 13% on Thursday and settled close to 5.2% after the biggest U.S. used-car retailer beat earning estimates as it sold more vehicles in the wholesale market and restarted its share repurchase program. 

For its fiscal third-quarter ended November 30, CarMax’s revenue declined 5.5% year-over-year to $6.15 billion, missing analyst’s estimates for sales of $6.3 billion. On the other hand, CarMax’s net earnings more than doubled on a year-over-year basis to $82 million, or $0.52 per share, surpassing Wall Street’s estimates for earnings of $0.41 per share. 

CarMax CEO Bill Nash said, "Our third-quarter performance reflects the continued efforts of the team that have resulted in several quarters of sequential improvements across key components of our business, despite the persistent widespread pressures in the used-car industry.”

CarMax enjoyed particular strength on the wholesale side of its business. Wholesale units increased by 7.7% year-over-year with an average gross profit per unit remaining steady at $961. Retail used-unit sales declined 2.9%, while retail gross profit was also in line with the same year-ago period at $2277. 

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What’s next for CarMax?

CarMax also resumed its share repurchase program in Q3 after halting it a year ago. The company bought back 684,500 shares of common stock during the quarter for $41.9 million. CarMax still has $2.41 billion remaining available under the current repurchase authorization. It is a hefty sum considering CarMax’s entire capitalization stands at just $12.5 billion. 

CarMax didn't provide specific forward revenue or earnings guidance. But given its relative earnings beat, encouraging business trends, and massive repurchase authorization, it's hardly surprising to see shares rallying today in response.

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