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CarMax (KMX) to Report Q3 Earnings: What's in the Cards?

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CarMax Inc. (KMX - Free Report) is slated to report third-quarter fiscal 2018 (ended Nov 30, 2017) results on Dec 21, before the opening bell. Last quarter, this specialty retailer of used vehicles delivered a positive earnings surprise of 3.16%.

The company pulled off positive earnings surprises in all the trailing four quarters with an average beat of 5.6%.

Let’s see how things have shaped up for the forthcoming announcement.

CarMax Inc Price and EPS Surprise

Factors Influencing This Quarter

CarMax aims at the used-car market and is one of the strongest among its peers. In the fiscal 2017, used vehicle sales rose 6.7%, supported by an 8.3% year-over-year increase in used car units sold.

The Richmond, VA-based company is also following an aggressive store expansion scheme in order to grow its presence in the existing and new markets. It opened a total of six stores during the first two quarters of fiscal 2018.

Significant increase in cash outflows from operations and rising capital expenditure might affect CarMax’s revenues. Further for fiscal 2018, the company projects capital expenditures of around $325 million.

For the soon-to-be-released quarterly results, the Zacks Consensus Estimate for net sales of used vehicles-retail is pegged at $3.45 billion, down from the second quarter’s actual net sales of $3.69 billion.

Similarly, the Zacks Consensus Estimate for net sales of the company’s wholesale vehicles stands at $487 million, down from the second quarter’s actual net sales of $548 million.

Also, the Zacks Consensus Estimate for Other sales and revenues is expected to be $132 million, down from the second quarter’s figure of $145 million.

Earnings Whispers

Our proven model does not conclusively show that CarMax is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: CarMax has an Earnings ESP of -0.67% as the Most Accurate estimate of 81 cents is lower than the Zacks Consensus Estimate of 82 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 #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against Sell-rated stocks (#4 or 5) going into earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few companies worth considering in the same space with the right combination of elements to surpass estimates this quarter:

Ford Motor Company (F - Free Report) has an Earnings ESP of +5.58% and a Zacks Rank of 3. The company is expected to report fourth-quarter 2017 results on Jan 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Oshkosh Corporation (OSK - Free Report) has an Earnings ESP of +10.21% and a Zacks Rank of 1. The company’s first-quarter 2018 financial results are expected to release on Jan 25.

Cummins Inc. (CMI - Free Report) has an Earnings ESP of +0.85% and is a Zacks #2 Ranked player. The company’s fourth-quarter 2017 financial results are expected to release on Feb 8.

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