On Tuesday, September 24, CarMax Inc. (KMX) will release sales and earnings for the second quarter ended August 31, 2013 and will host a conference call for investors at 9:00 a.m. ET.
Wall Street anticipates that the used car dealer will earn $0.56 for the quarter. iStock expects KMX to beat Wall Street's consensus number. The iEstimate is $0.57, a penny more than expected.
CarMax, Inc., through its subsidiaries, operates as a retailer of used vehicles in the United States. It operates in two segments, CarMax Sales Operations and CarMax Auto Finance.
In what's usually a reliable sign that an excellent quarter is on the way, Oppenheimer increased its CarMax price target to $61 from $52on the doorstep of Tuesday's news. The research firm says used car comps are getting stronger as the economy improves which is easing supply constraints while internal initiatives start to bear fruit.
It's aggressive for a research firm to make a call so close to EPS results as they can look foolish rather quickly. If CarMax misses and disappoints with guidance, $61 could appear a long, long way to go.
Oppenheimer is right that comps are likely to be getting healthier. The National Auto Dealers Association (NADA) reports, "Good news! Used vehicle prices remain at a historically high level with only a small drop of 1.1% in August, matching the average rate of loss in June and July. This comparatively light drop in August (prices fell 1.5% and 2.3% for the month in 2012 and 2011, respectively) lifted NADA's seasonally adjusted used vehicle price index to 124.8, the highest level recorded so far in 2013."
High prices while sales and strong sales are a recipe for fat profits.
Additionally, our review of KMX's most recent 10-Q shows demand is real healthy as inventory fell 7.9% while sales grew at 24%. That's a powerful combination that should result in strong pricing power.
In the last four years, CarMax has topped Wall Street's expectations 10 of 16 quarterly reports, misse! d the mark thrice, and hit the street's consensus three times, as well. All three misses and two of the ties resulted in poor stock performance in the days surrounding EPS. On average, the stock lost 4.87%.
Now, 60% of the bullish surprises have rewarded investors with an average gain of 9.60. Meanwhile, KMX shares soured despite beating the number four occasions, losing an average of 5.53 in the three-days bookending EPS news.
Overall: Price and sales trend are working in CarMax Inc. (KMX) favor, which could make the iEstimate too conservative.
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