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Why CarMax (KMX) is Poised to Beat Q3 Earnings Estimates

Higher year-over-year sales and average selling price of used vehicles should have buoyed CarMax's (KMX) third-quarter fiscal 2022 earnings.

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This story originally appeared on Zacks

CarMax Inc. KMX is slated to release third-quarter fiscal 2022 results on Dec 22, before the opening bell. The Zacks Consensus Estimate for the quarter’s earnings and revenues is pegged at $1.49 per share and $7.63 billion, respectively.

- Zacks

The used car dealership chain posted earnings miss in the last reported quarter on lower-than-anticipated gross profit per unit from the company’s used and wholesale vehicles segment. Over the trailing four quarters, CarMax surpassed estimates on three occasions while missing once, with the average surprise being 20.5%. This is depicted in the graph below:

CarMax, Inc. Price and EPS Surprise

CarMax, Inc. Price and EPS Surprise

CarMax, Inc. price-eps-surprise | CarMax, Inc. Quote

Trend in Estimate Revision   

The Zacks Consensus Estimate for CarMax’s fiscal third-quarter earnings per share has been revised downward by a penny in the past seven days. The bottom-line projection, however, indicates an increase from the year-ago earnings of $1.42 per share. The Zacks Consensus Estimate for quarterly revenues suggests year-over-year growth of 47.2%.

Earnings Whispers

Our proven model predicts an earnings beat for CarMax this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This has been elaborated below.

Earnings ESP: CarMax has an Earnings ESP of +2.08%. This is because the Most Accurate Estimate is pegged 3 cents higher than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CarMax currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors to Note

During the quarter to be reported, CarMax exited the new-vehicle retail business with the sale of its last new-car dealership to the Rydell Company. Higher year-over-year sales and average selling price (ASP) of used vehicles should have buoyed CarMax’s third-quarter fiscal 2022 revenues.

The Zacks Consensus Estimate for CarMax’s net sales from used vehicles is $5,832 million, indicating an uptick from the $4,210 million recorded in the prior-year quarter. For the November-end quarter, the consensus estimate for ASP is pegged at $25,900, indicating an increase from the year-ago figure of $21,400. The Zacks Consensus Estimate for quarterly gross profit from the used-vehicle segment is pegged at $471 million, calling for a rise from $419 million reported in the year-earlier quarter.

The auto retailer’s consistent efforts to modernize wholesale auction platforms are likely to have aided the company during the quarter under review. The Zacks Consensus Estimate for quarterly net sales of wholesale vehicles is pegged at $1,508 million, indicating an increase from the prior-year period’s $828 million. The Zacks Consensus Estimate for quarterly gross profit from the wholesale vehicle segment is pegged at $155 million, suggesting a surge from the $114 million reported in the prior-year quarter.

CarMax’s omni-channel efforts to optimize customer shopping experience are also likely to have supported the top line during the to-be-reported quarter. While store expansion efforts might have clipped operating margins to some extent, high revenues from used vehicle sales are likely to have more than offset high costs.

Play the Auto Space With These Stocks

For those interested to invest in the auto sector, consider betting on Goodyear Tire GT, Tesla TSLA and Harley-Davidson HOG, each flaunting a Zacks Rank of 1.

Goodyear has an expected earnings growth rate of 196.9% for the current year. The Zacks Consensus Estimate for its earnings for the current year has been revised upward by 80 cents over the past 60 days.

Goodyear beat the Zacks Consensus Estimate for earnings in the last four quarters. GT has a trailing four-quarter earnings surprise of 228.5%, on average.

Tesla has an expected earnings growth rate of 167% for the current year. The Zacks Consensus Estimate for its earnings for the current year has been revised upward by 62 cents over the past 60 days.

Tesla beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing once. TSLA has a trailing four-quarter earnings surprise of 25.38%, on average.

Harley-Davidson has an expected earnings growth rate of an astounding 36,100% for the current year. The Zacks Consensus Estimate for its earnings for the current year has been revised upward by 2 cents over the past 30 days.

Harley-Davidson beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing once, with a negative earnings surprise of 138.45%, on average.





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