$12.68
$41.92
bear $12.68
base $33.14
bull $41.92
margin of safety $19.00
market price* $53.33
CarMax is the largest used-vehicle retailer in the United States. It sells nearly 800,000 used cars a year at retail through about 256 stores and online, and buys cars from consumers and dealers for resale or wholesale auction. It also runs CarMax Auto Finance, an in-house lender that holds about $16 billion of car loans (February 28, 2026). Those loans are funded almost entirely by securitization notes that are repaid only from the loans themselves. CarMax also sells extended protection plans on the cars it sells. What changed since our last look. Our previous estimate (bear $69, base $110, bull $136) had two errors, and both overstated value. First, our cash-earnings measure did not charge for the finance arm's loan losses or for refunds on cancelled protection plans. In the cash-flow statement these costs appear as non-cash provisions, and the actual write-offs and refunds are buried inside the loan and liability balances we had set aside. Both are real, recurring costs of running the business. Loan-loss provisions were $391 million in fiscal 2026 and $335 million in fiscal 2025, and cancellation provisions were about $76-98 million a year. We now charge both in every year. Second, we had not subtracted CarMax's corporate borrowings. We now value the business before its lenders are paid and then subtract what it owes, as described below. Together these two corrections explain most of the drop. How we measure earnings. We count cash earnings after all operating costs, stock compensation, loan losses and capital spending. We add back non-cash charges, including the $141 million goodwill write-down in fiscal 2026. The finance arm is treated like a lender: interest on its securitization notes is an operating cost, and those notes are not treated as company debt, because they are repaid from the loans that back them. On that basis, cash earnings per share were $3.52-$4.86 in fiscal 2018-2021 and $8.03 in fiscal 2022, the peak of the used-car price spike. They have since fallen to $2.04, $1.76, $2.08 and $1.87 in fiscal 2023-2026. The lower level reflects higher credit losses at the finance arm, higher selling and technology costs after the omni-channel build-out, heavier capital spending and tougher competition for used-car buyers. Fiscal 2026 comparable-store used units fell 2.0%. We judge fiscal 2023-2026 to be the business as it exists today and use the median of those four years. Before corporate interest, that comes to about $416 million a year, or roughly $2.93 per diluted share on today's 142 million shares. The pre-2022 years describe a less competitive market with lower loan losses, and we do not assume a return to them. Because revenue fell in each of the last four years, all capital spending (about $541 million in fiscal 2026) is charged as a cost of staying in business, including new stores and reconditioning centers. If about $125 million a year of that were really optional growth spending, the base value would be roughly $15 per share higher. Near-term path. Cash earnings before interest fell 10.8% in fiscal 2026. In the base case we assume fiscal 2027 about 3% above that at $395 million, for a reason CarMax disclosed in its fiscal 2026 annual report. It completed restructurings in the third and fourth quarters of fiscal 2026, including a roughly 30% cut to its customer experience center workforce, with about $95 million of annualized savings. The company says about half of the fiscal 2027 benefit will be offset as bonuses and stock pay return to normal from unusually low fiscal 2026 levels. We credit the executed savings, not the $200 million target, and reach the $416 million median level in fiscal 2028, when the company expects the full effect. Base case (about $33 per share). Cash earnings before interest are $395 million, then $416 million. After that they grow 0.5% a year from store openings: six stores in fiscal 2026 and four planned for fiscal 2027, on a base of about 256. That rate is well below the store-count growth because new stores have not lifted total unit sales since fiscal 2020. After ten years, earnings hold flat. That rests on CarMax's national footprint, its car-buying engine and its finance and servicing platform, which have kept it profitable every year for three decades, including 2009 and 2020. We credit no market-share gains, no rise in finance penetration toward management's 50% goal, and no return of used-car prices or volumes. The business is worth about $7.12 billion, it owes about $2.41 billion, and the shares are worth about $4.71 billion, or $33.14 each. Bear case (about $13 per share). The pressures already in the filings keep building: comparable-store unit sales keep falling, and the finance arm's expansion into riskier Tier 2 lending pushes loan losses higher (provisions rose 17% in fiscal 2026). Cost savings are absorbed by normal pay and inflation. Cash earnings before interest slide to $360 million, then $330 million, and settle at $310 million, then shrink 3% a year after year ten. Corporate interest of about $110 million is still covered nearly three times. The business is worth about $4.21 billion, it owes about $2.41 billion, and the shares are worth about $1.80 billion, or $12.68 each. Bull case (about $42 per share). CarMax's own levers work: the full $200 million of SG&A savings arrives by fiscal 2028, the redesigned protection-plan program adds margin, and off-balance-sheet loan sales add servicing income (the September 2025 non-prime sale alone is expected to bring $40-45 million over its life). Cash earnings before interest reach $410 million, $450 million and then $470 million, grow 1.5% a year with store openings through year ten, then hold flat. The business is worth about $8.37 billion, it owes about $2.41 billion, and the shares are worth about $5.96 billion, or $41.92 each. What it owes. As of February 28, 2026, corporate debt was an $841 million draw on the $2 billion revolving credit facility (5.09% average rate in fiscal 2026), a $500 million term loan extended to November 2030, $400 million of senior notes, $484 million of sale-leaseback financing obligations and $192 million of finance leases, about $2.42 billion in total. The 4.17% notes matured in April 2026, and the 4.27% notes due 2028 cost slightly less than our 6% benchmark, which trims the debt figure by about $5 million. The rest of the borrowing carries floating rates near 5%. We treat the $123 million of cash as needed to run the business. Total borrowings, including the finance arm's notes, rose about $100 million in the quarter to May 31, 2026. The filings we have do not separate that change between corporate and finance-arm debt, so we did not add it. There is no sign of covenant strain, and $1.16 billion of the revolver was unused at year end. Values are divided by about 142.1 million diluted shares. What would make this wrong. On the downside, a real credit downturn at the finance arm, whose loans are about 4-5% equity-funded by CarMax, or faster share loss to online rivals. On the upside, proof that new stores and the reconditioning network are growth investments that pay off, which would make our all-maintenance treatment of capital spending too harsh, or a lasting fall in loan losses as tighter underwriting takes hold. Fiscal 2026 also included a one-time $26.9 million gain on the September 2025 loan sale, which we left in because it is small and the company plans more such sales. Values use a 6% discount rate.