10:46 AM EDT, 10/01/2025 (MT Newswires) -- CarMax's ( KMX ) recent weaker-than-expected Q2 results call into question the company's ability to execute in a competitive operating environment, Morgan Stanley said in a Wednesday note.

Noting the company's recent quarterly performance, Morgan Stanley said the CarMax's ( KMX ) return to share loss was compounded by a greater-than-expected provision for loan losses with the company citing underperformance in 2022-2023 vintages.

Morgan Stanley further said it believes that CarMax ( KMX ) has the "right strategy and tools" to return to retail volume growth via expanded production capacity, expanding CarMax ( KMX ) auto financing penetration, among others.

Even with the "right strategy", Morgan Stanley said it was "marginally less convicted" in the company's ability to return to a steady state in the immediate term while CarMax ( KMX ) rightsizes itself.

The firm rated CarMax ( KMX ) as overweight and lowered its price target $56 from $80.

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