CarMax (KMX) reported strong Q4 earnings, hinting that the momentum would continue into Q1 with sales growth in the high single digits, RBC Capital Markets said in a note Friday.

Despite positive results, shares dropped due to worries about higher loan loss provisions and overall economic concerns, the investment firm said.

Q1 comparable sales grew steadily, with March's numbers expected to be stronger than February and further improvements expected in April, RBC analysts noted.

CarMax's management introduced an earnings growth target in double digits, driven by moderate sales growth translating into higher earnings growth, according to the note.

A sharp increase in loan loss provisions is expected in Q1, linked to seasonal factors and plans to recapture lower-tier lending business as CarMax plans to grow financing business penetration by regaining business previously shifted to other lenders, the analysts said.

Capital expenditures are projected to rise this year driven by the timing of land purchases, funding new store openings and additional reconditioning centers, RBC said in the note.

RBC maintained an outperform rating for CarMax and cut its price target to $80 from $103.

Price: 67.23, Change: +0.77, Percent Change: +1.17