America’s Car-Mart (CRMT) recently delivered big beats on both the top- and bottom-lines. This prompted analysts to revise their earnings estimates significantly higher for both this year and next, sending it to a Zacks Rank #1 (Strong Buy).
America’s Car-Mart operates 136 automotive dealerships in ten states and is focused exclusively on selling and financing used cars. It operates primarily in small cities throughout the south-central United States.
Car-Mart primarily sells older model used vehicles and provides financing for substantially all of its customers, many of whom have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems.
Second Quarter Results
America’s Car-Mart delivered better-than-expected results for its fiscal 2015 second quarter on November 19. Earnings per share came in at 83 cents, crushing the Zacks Consensus Estimate of 67 cents. It was a 36% increase over the same quarter last year.
Revenue rose 10% to $133.8 million, well ahead of the consensus of $125.0 million. This was driven in part by a 5.4% increase in same-store sales. Retail unit sales jumped 13.9% year-over-year with 29.6 retail units sold per dealership per month, up from 27.6 in the same quarter last year. This more than offset a 2.3% decline in the average retail sales price to $9,490.
One of Car-Mart’s largest expenses is the provision it takes for credit losses. the provision for credit losses was 26.3% of sales in Q2, on par with the prior year quarter. Accounts over 30 days past due improved from 4.7% to 4.4%. As the economy and labor market improve, credit losses should decline, ceteris paribus.
Meanwhile, selling, general & administrative expenses declined from 18.2% to 17.3% of sales as the company leveraged its fixed expenses.
Estimates Soaring
Following strong Q2 results, analysts revised their estimates significantly higher for both fiscal 2015 and 2016. This sent the stock to a Zacks Rank #1 (Strong Buy).
The 2015 Zacks Consensus Estimate is now $3.27, up from $2.90 before the report. The 2016 consensus has increased from $3.11 to $3.50 over the same period.
Based on these estimates, analysts are projecting 18% EPS growth this year and 7% growth next year.
Valuation
Shares of Car-Mart have soared since the Q2 report. The stock now trades around 15x 12-month forward earnings and 18x cash flow. Both of these multiples are above their 10-year historical median but are not unreasonable given the company’s improving fundamentals.
The Bottom Line
The near-term outlook looks bullish for America’s Car-Mart as earnings estimates have soared following much better-than-expected second quarter results.
Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.
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