Car-Mart earnings per share to jump 13%, revenue to rise 3%, analysts say

by Jeff Della Rosa (JDellaRosa@nwabj.com) 142 views 

America’s Car-Mart Inc. should see earnings and revenue increase in the first quarter of fiscal 2020, according to analysts’ estimates.

After the markets close Aug. 15, the buy here, pay here used car dealer will report earnings for the quarter that ended July 31. Earnings are expected to rise 13% to $1.73 per share in the first quarter of fiscal 2020, based on a consensus of five analysts. Revenue is projected to rise by 3.2% to $169.31 million.

In an earnings preview for the auto finance industry, equity analysts John Hecht and Kyle Joseph and equity associates Ryan Carr and Trevor Williams, all of Jefferies, noted that auto finance companies have been stable as far as underwriting, credit trends and origination factors. As a result, earnings are expected to be good when coupled with positive seasonal trends.

With regard to credit, net charge offs typically decline in this period as a result of tax refunds, and this is followed by a slight increase in delinquencies. Credit trends are usually good over the period and volumes are strong. But with the start of the second half of the year, credit losses increase and volumes decline. Subprime auto loan losses increased narrowly to nearly 6.6% as of the middle of the period. Prime auto losses were less than 1% and showed healthy trends. Nearly all of Car-Mart’s customers have deep subprime credit scores. Used car volumes have continued to rise, and this is expected to support loan volumes.

Between late 2016 and mid-2018, lending tightened, and lending factors have started to become more stable with underwriting looking to be more neutral since mid-2018. Credit has had a small positive impact on earnings in 2019 as it has improved from 2017 and 2018, but it’s no longer expected to have an impact in 2020. Then, a rise in earnings is expected to be more a result of portfolio expansion, efficiencies and margins, according to Hecht, Joseph, Carr and Williams.

The analysts see vehicle value trends as OK but not as strong as they’ve been. The Manheim Index shows wholesale used vehicle prices and indicates recovery rates for auto lenders. In July, the index rose 2.6% to 140.5, from the same month in 2018. The index narrowly increased from June. Vehicle values were stronger in July than normal as they usually fall by about 1% in the month. However, in July 2018, prices increased from July 2017, and the rise was driven by high consumer demand as a result of tariff fears and rising interest rates.

Prices of non-luxury vehicles remain higher than they were at the start of the year. The prices of vans and pickups increased the most of all the vehicle segments in July.

Total used vehicle sales fell 0.3% in July, from the same month in 2018, according to Cox Automotive. The seasonally adjusted annual rate of sales fell to 39.7 million, from 40.1 million. Consumer confidence rose 9.2% in July and reached its highest level of the year as views and expectations improved. However, this didn’t come with a corresponding rise in the number of those with plans to purchase a vehicle in the next six months. Consumer confidence is expected to fall in August as trade tensions rise with China and stock markets become volatile.

Hecht, Joseph, Carr and Williams said Car-Mart’s same-store sales have moderated to historical levels following several strong quarters of performance. Gross margins are expected to rise 30 basis points to 41.9% in the quarter, from the same period in 2018. The number of vehicles sold is expected to rise by 0.5% to 12,596 vehicles, and the average sales price is projected to rise by 3.5% to $11,401. Credit continues to be stable, and revenue has been strong.

“Management’s strategy of ‘blocking and tackling’ by investing in long-term employees, building community-based stores and selling reliable vehicles which will be less likely to charge off has paid off as the company has consistently delivered strong top-line results,” according to Hecht, Joseph, Carr and Williams. “While (same-store sales) may reverberate following a continued period of exceptionally strong performance, we remain positive on (Car-Mart’s) ability to deliver strong and consistent results.”

The Jefferies analysts maintain a hold rating and a 12-month target price of $96 for Car-Mart’s stock.

Shares of Car-Mart (NASDAQ: CRMT) were trading noon Thursday at $91.68, up $2.73, or 3.07%. In the past 52 weeks, the stock has ranged between $104.05 and $63.60.

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