America’s Car-Mart Upgraded to Buy by Janney, Price Target Raised to $96

America’s Car-Mart (CRMT) received an investment-rating upgrade Monday to buy from neutral from Janney Montgomery Scott following the automotive retailer’s report late last week of higher-than-expected fiscal Q1 results.

Janney also raised its price target on the stock to $96 per share from $61, bringing the target above the stock’s Friday closing price of $81.55 following a 22% jump in the shares in Friday’s session.

In a note to clients, Janney said “we have seen a turnaround in CRMT’s fundamentals over the past few quarters and we think it’s time to recognize that this is not short-term phenomenon, but rather the start of a secular shift that could take years to play out.”

The firm noted “for the last few years, we have been concerned over CRMT’s (and the industry in general) march toward longer durations and slowing cash conversion cycle.” However, it added, “in taking the last few
quarterly reports as a whole, it seems like CRMT is finally starting to back out the aforementioned issues.”

Janney highlighted that in America’s Car-Mart’s fiscal Q1, the company reduced the average loan duration to 32.4 months from 32.6 months a year earlier. “It’s a small change and longer term we would like to see durations back down <30 months, but it is undoubtedly improving cash collections via shorter amortization,” the firm said.

The firm raised its estimate for America’s Car-Mart’s fiscal 2019 earnings per share. It added: “We are choosing to get more constructive on CRMT here based on our belief that the early stages of a cyclical recovery disproportionately benefit CRMT.”

Late Thursday, America’s Car-Mart reported adjusted earnings per share for its fiscal Q1 ended July 31 of $1.40, up sharply from $0.88 a year earlier and well above three analysts’ mean estimate according to Capital IQ of $1.09. Revenue totaled $164.0 million, up from $146.4 million a year earlier and above the three analysts’ mean estimate of $160.0 million.