Michael Fowlkes' Analyst Insights
InvestorsObserver
Options and ETF Analyst Writer
Michael Fowlkes
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April 4, 2016 - CarMax Scheduled to Report Fourth Quarter Earnings
What's happening with KMX: Auto retailer CarMax (KMX) is scheduled to report its fiscal fourth-quarter results on April. 7. The company will report its quarterly results before the market open, with the consensus calling for earnings of $0.71 per share. During the same period last year the company had earnings of $0.67. The stock is rebounding from last year's sell off, and shares are currently close to break-even for the year, and are down 5.7% on the year.
Technical analysis: KMX was recently trading at $50.90, down $24.50 from its 12-month high and $9.65 above its 12-month low. Technical indicators for KMX are neutral and the stock is in a sideways trend. The stock has recent support above $47.10 and recent resistance below $51.35. Of the 15 analysts who cover the stock, seven rate it a "strong buy", one rates it a "buy", and seven rate it a "hold". The stock receives S&P Capital IQ's 3 STARS "Hold" ranking.
Analysts' thoughts: CarMax reported disappointing results last quarter, missing the consensus for both the top and bottom lines. The stock initially sold off on the report, but has since started to rebound. Shares have faced some stiff resistance around $52.50, and it will take an upbeat report for the stock to climb above that level. I remain upbeat on the auto industry, and believe that a firming labor market, in conjunction with low gas prices should keep the industry strong and drive earnings growth at major auto retailers. Analysts expect KMX to grow earnings by 13.1% this year, and by an additional 10.9% next year. Even with the recent rally in the stock, it has a relatively low P/E of 17.0, which combined with the solid earnings growth forecast should help shares continue to erase last year's losses. The street's whisper number is actually a penny higher than the consensus at $0.72, indicating that analysts are bullish on the company?s ability to hit the consensus. I expect a decent quarter, with shares moving higher on the results.
Stock-only trade: If you're looking to establish a long stock position in KMX, consider buying the stock if it pulls back under $50.75. Sell if it falls below $45.50 or take profits if it gets to $58.25.
Bullish trade on KMX: If you want a bullish hedged trade on the stock, consider a July 35/40 bull-put credit spread for a 35-cent credit. That's a potential 7.5% return and the stock would have to fall 20.7% to cause a problem.
Bearish trade on KMX: For traders that expect a disappointing report and the stock to move lower, consider a July 60/65 bear-call credit spread for a $0.30 credit. That's a potential 6.4% return and the stock would have to rise 18.4% to cause a problem.
Covered Call Trade: If you want to bet on the stock to build on recent momentum, but want to lower your cost basis on the stock, consider a July $47.50 covered call. Buy CAG shares (typically 100 shares, scale as appropriate), while selling the July $47.50 call for a debit of $45.20 per share. The trade has a target assigned return of 5.1%.
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