08:53 AM EDT, 09/27/2024 (MT Newswires) -- CarMax ( KMX ) appears to be in stable footing with fiscal Q2 sales and gross profit per unit offsetting significant risks in its auto finance business, Wedbush said in a note Friday.

The company on Thursday reported fiscal Q2 EPS of $0.85 on sales of $7.01 billion. Earnings rose from $0.75 per share a year earlier, while sales fell from $7.07 billion.

"On the one hand, KMX is executing well in a more stable industry environment to drive market share gains and strong vehicle gross profit growth," analysts from Wedbush wrote. "On the other hand, our concerns on CAF [CarMax Auto Finance)] loss provisions were validated and the outlook for this credit cycle is uncertain, creating additional risk."

The auto finance business declined 14.4% year-on-year to $115.6 million during the quarter, CarMax ( KMX ) reported, which was lower than Wedbush's estimate of $135 million.

Wedbush said it remains concerned that loss trends for CarMax's ( KMX ) recent securities are "not showing much improvement" compared to prior ones despite the company tightening its underwriting standards.

"Nonetheless, the core business appears to be on much better footing, with positive comps likely to persist and GPU drivers solid," Wedbush said.

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