CarMax (KMX) Stock: What Starboard’s $350M Stake Means for Investors

TLDR

• Activist investor Starboard Value disclosed a $350 million stake in CarMax (KMX)
• Starboard nominated its CEO Jeffrey Smith and Frontdoor CEO Bill Cobb to join CarMax’s board
• Starboard is pushing for better digital experience, cost cuts, and dynamic pricing
• Starboard identified $300 million in potential cost savings from admin and operations
• KMX stock has fallen 42% over the past 12 months, with the stock trading around $42

Activist investor Starboard Value has taken a $350 million stake in CarMax (KMX) and is pushing for changes at the used-car giant. The move comes as CarMax stock sits down 42% over the past year.

CarMax, Inc., KMX

Starboard nominated two directors to CarMax’s nine-member board: its own founder and CEO Jeffrey Smith, and Bill Cobb, the CEO of home warranties company Frontdoor. The nominations were disclosed in a Bloomberg report.

This is Starboard’s second activist push in under a week. On March 9, it also revealed a stake in frozen-potato maker Lamb Weston to help with that company’s turnaround.

In a letter to CarMax CEO Keith Barr, Starboard laid out its vision. Barr joined CarMax after leading a digital transformation at InterContinental Hotels Group between 2017 and 2023.

What Starboard Wants Changed

Starboard wants CarMax to lean harder into its omnichannel model — blending online sales with its 250 physical locations. It’s calling for a better digital user experience, faster cost-cutting, and dynamic pricing to respond to market shifts.

The activist fund says there’s $300 million in potential savings sitting in CarMax’s admin and operations budget. It argues that capturing those savings would make the hybrid model more profitable and more customer-friendly.

CarMax moves over one million vehicles annually and pulls in more than $26 billion in yearly revenue. Despite that scale, the company has struggled. KMX closed at $42.14 on Tuesday, with a market cap of roughly $6 billion.

What’s Weighing on the Stock

The used-car market has been tough. High interest rates have slowed buyer demand, and wholesale prices are down 15% year-over-year from 2024 peaks. Inventory levels have climbed, squeezing margins across the board.

CarMax also faces stiff competition from Carvana and AutoNation, both of which have been more aggressive on price and online experience.

On the earnings front, CarMax posted Q3 EPS of $0.43, beating the $0.31 consensus. Revenue came in at $5.79 billion, down 6.9% year-over-year but ahead of estimates.

Silver Heights Capital Management added to its CarMax position in Q3, boosting its stake by 39.5% to 926,167 shares worth roughly $41.6 million. That makes KMX its third-largest holding.

Analyst sentiment on KMX is cautious. On TipRanks, the stock holds a Hold consensus — one Buy, 10 Holds, and three Sells. The average price target of $36.56 implies more than 13% downside from current levels.

On MarketBeat, the consensus is “Reduce,” with a target of $39.21. Barclays rates it underweight with a $28 target. JPMorgan also has an underweight rating, cutting its target to $28 in December. Mizuho has a neutral rating with a $36 target.

KMX has a 52-week range of $30.26 to $82.79, a P/E of 14.01, and a debt-to-equity ratio of 2.74.

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