CarMax Inc. KMX is set to report third-quarter fiscal 2016 (ended Nov 30, 2015) results on Dec 18. Last quarter, the company posted a positive earnings surprise of 5.33%. 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’s car-buying appraisal strategy is commendable as this enables it to offer a wide inventory of models, reflecting the taste of each market. All these factors are likely to drive the company’s third-quarter fiscal 2016 results.
However, CarMax is under considerable pressure as the used-car market in the U.S. is highly fragmented and competitive, with the used-car inventory witnessing an increase.
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, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: CarMax has an Earnings ESP of -1.47%. This is because the Most Accurate estimate stands at 67 cents, while the Zacks Consensus Estimate is pegged at 68 cents.
Zacks Rank: CarMax’s Zacks Rank #3 (Hold) 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:
AB Volvo VOLVY has an Earnings ESP of +5.26% and a Zacks Rank #3. The company is expected to release fourth-quarter 2015 earnings results on Feb 4, 2016.
PACCAR Inc. PCAR has an Earnings ESP of +0.94% and a Zacks Rank #3. The company will report fourth-quarter 2015 results on Jan 29, 2016.
Navistar International Corporation NAV has an Earnings ESP of +6.90% and a Zacks Rank #3. The company will report fourth-quarter fiscal 2015 results on Dec 17.
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