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CarMax (KMX) to Post Q2 Earnings: What’s in the Cards?

Zacks

CarMax Inc. KMX is set to report second-quarter (ended Aug 31, 2016) fiscal 2017 results on Sep 21, before the market opens. Last quarter, the company posted a negative earnings surprise of 2.17%. However, in the trailing four quarters, it has delivered an average positive earnings surprise of 0.01%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

CarMax pursues an aggressive store growth policy, driven by improvements in the sales environment in the U.S. New stores help the company penetrate into new markets, thereby boosting sales. In addition, CarMax places greater emphasis on the used-car market, which helps it to outperform other players in the industry. The company is among the strongest operators in its peer group. Also, CarMax consistently enhances shareholder value through share buybacks, which helps boost earnings per share. As of May 31, the company had $1.27 billion of authorization remaining under its share repurchase program. All these factors are likely to drive the company’s second-quarter fiscal 2017 results.

However, CarMax is facing challenges such as high competition and fragmentation in the used-car market in the U.S. Also, other sales and revenues are witnessing a decline. This may adversely impact the company’s upcoming results.


CARMAX GP (CC) Price and EPS Surprise

CARMAX GP (CC) Price and EPS Surprise | CARMAX GP (CC) Quote

Earnings Whispers

Our proven model does not conclusively show that CarMax is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. CarMax’s Earnings ESP is -1.14% because the Most Accurate Estimate is 87 cents while the Zacks Consensus Estimate is pegged at 88 cents.

Zacks Rank: CarMax carries a Zacks Rank #2, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Ferrari N.V. RACE, which will report third-quarter 2016 results on Oct 26, has an Earnings ESP of +1.75% and a Zacks Rank #2.

Superior Industries International, Inc. SUP has an Earnings ESP of +10.00% and a Zacks Rank #1. The company will report third-quarter 2016 financial numbers on Nov 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Magna International Inc. MGA has an Earnings ESP of +0.83% and a Zacks Rank #2. The company is expected to release third-quarter 2016 results on Nov 3.

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