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Will CAF Business Pull Down CarMax (KMX) Earnings in Q1?


CarMax Inc. KMX is slated to report first-quarter fiscal 2018 (ended May 31, 2017) results on Jun 21, before the opening bell. Last quarter, this Richmond, VA-based specialty retailer of used and new vehicles delivered a positive earnings surprise of 2.53%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

CarMax has been facing dwindling sales in the CarMax Auto Finance (CAF) business. In fiscal 2017, revenues from the segment declined 5.9% year over year. This decline was due to a rise in provision for loan losses, partly offset by the impact of a rise in average managed receivables.

For the company, capital expenditures for fiscal 2017 were $418.1 million, up around 34.5% year over year. Also, the company expects capital expenditures of roughly $325 million for fiscal 2018.

However, CarMax’s focus on the used-vehicle market, aggressive store-expansion and share repurchases should help the company outperform its peers.

CarMax Inc Price and EPS Surprise

CarMax Inc Price and EPS Surprise | CarMax Inc Quote

Earnings Whispers

Our proven model does not conclusively show that CarMax is likely to beat estimates this earnings season. 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 for CarMax is currently -1.02% as the Most Accurate estimate of 97 cents is below the Zacks Consensus Estimate of 98 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CarMax carries a Zacks Rank #3.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Price Performance

Shares of the company outperformed the Zacks categorized Retail/Wholesale-Auto Parts industry in the last three months. The company’s shares have lost 0.8% while the industry has declined 14.1%.

Stocks to Consider

Some better-ranked stocks in the auto space include Allison Transmission Holdings Inc. ALSN, Dana Incorporated DAN and Ferrari N.V. RACE, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Expected long-term growth rate for Allison Transmission, Dana and Ferrari are 11%, 3% and 14.1%, respectively.

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