Redcards Long Thesis On CarMax, Inc (KMX)

Long Thesis On CarMax, Inc (KMX) by Redcards [klarman] Capital Structure Considerations $300m of long-term debt at 1.6% interest (expiring 11/17) and 0.2x net debt/EBITDA ratio. Investment Thesis Sentiment on the subprime auto ABS market is too bearish. The Street ignores the outperformance of CarMax’s auto loans benefiting from an increasing origination rate driven by consensus expectations of modest retail gross profit expansion as store base grows 45%. KMX’s auto loans offer an asymmetric risk/reward opportunity as auto ABS are not capitalized with subprime credit or the Company’s balance sheet. ABS credit metrics have best-in-class risk performance of < 2%…