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Will CarMax (KMX) Q4 Earnings Disappoint on High Bad Loans?
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CarMax Inc. (KMX - Free Report) is slated to report fourth-quarter fiscal 2017 (ended Feb 28, 2017) results on Apr 6, before the opening bell. In the last quarter, the company posted positive earnings surprise of 1.41%.
Let’s see how things are shaping up prior to this announcement.
Factors Affecting the Company
CarMax has been facing declining sales in the CAF business. In the first nine months of fiscal 2017, revenues from the segment declined 4.5% year over year. This was primarily due to an increase in provision for loan losses, partly offset by the impact of a rise in average managed receivables.
Moreover, the company has been facing significant cash outflows from operations over the last few quarters. In fiscal 2016, it had cash outflows of $148.9 million from operations, while the first nine months of fiscal 2017 saw outflows of $343.1 million. Capital expenditures for the fiscal are estimated to be 86.9% higher year over year, with expected spending of roughly $134.5 million in the fourth quarter.
Further, declining used-car prices is also a headwind. Moreover, a rise in CarMax’s risky loans can pose a threat to the company. As per Barrons, the economy is turning less friendly to used-car customers; personal bankruptcies are rising and interest rates have been raised, implying that the company might suffer from bad loans. This would also put pressure on its operating income.
Our proven model does not conclusively show that CarMax is likely to beat estimates this quarter. 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 -1.27% as the Most Accurate estimate of 78 cents is below the Zacks Consensus Estimate of 79 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 #4 (Sell). 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 seeing negative estimate revisions.
Price Performance
So far this year, the company’s shares rose 15.2% while the Zacks categorized Retail/Wholesale-Auto Parts industry saw a 9.6% increase. The upside in the stock price is driven by aggressive store expansion and capital deployment to boost shareholders’ value.
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:
Gentex Corporation (GNTX - Free Report) has an Earnings ESP of +3.23% and a Zacks Rank #3. The company is expected to report first-quarter 2017 financial numbers on Apr 28.
Cummins Inc. (CMI - Free Report) has an Earnings ESP of +8.09% and a Zacks Rank #3. The company is expected to release first-quarter 2017 results on May 2.
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Will CarMax (KMX) Q4 Earnings Disappoint on High Bad Loans?
CarMax Inc. (KMX - Free Report) is slated to report fourth-quarter fiscal 2017 (ended Feb 28, 2017) results on Apr 6, before the opening bell. In the last quarter, the company posted positive earnings surprise of 1.41%.
Let’s see how things are shaping up prior to this announcement.
Factors Affecting the Company
CarMax has been facing declining sales in the CAF business. In the first nine months of fiscal 2017, revenues from the segment declined 4.5% year over year. This was primarily due to an increase in provision for loan losses, partly offset by the impact of a rise in average managed receivables.
Moreover, the company has been facing significant cash outflows from operations over the last few quarters. In fiscal 2016, it had cash outflows of $148.9 million from operations, while the first nine months of fiscal 2017 saw outflows of $343.1 million. Capital expenditures for the fiscal are estimated to be 86.9% higher year over year, with expected spending of roughly $134.5 million in the fourth quarter.
Further, declining used-car prices is also a headwind. Moreover, a rise in CarMax’s risky loans can pose a threat to the company. As per Barrons, the economy is turning less friendly to used-car customers; personal bankruptcies are rising and interest rates have been raised, implying that the company might suffer from bad loans. This would also put pressure on its operating income.
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 quarter. 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 -1.27% as the Most Accurate estimate of 78 cents is below the Zacks Consensus Estimate of 79 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 #4 (Sell). 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 seeing negative estimate revisions.
Price Performance
So far this year, the company’s shares rose 15.2% while the Zacks categorized Retail/Wholesale-Auto Parts industry saw a 9.6% increase. The upside in the stock price is driven by aggressive store expansion and capital deployment to boost shareholders’ value.
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:
General Motors (GM - Free Report) , which will report first-quarter 2017 results on Apr 28, has an Earnings ESP of +11.72% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Gentex Corporation (GNTX - Free Report) has an Earnings ESP of +3.23% and a Zacks Rank #3. The company is expected to report first-quarter 2017 financial numbers on Apr 28.
Cummins Inc. (CMI - Free Report) has an Earnings ESP of +8.09% and a Zacks Rank #3. The company is expected to release first-quarter 2017 results on May 2.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>