Auto retailer CarMax ( KMX ) will report its fiscal first-quarter numbers June 21. The company will report before the market open, with the consensus calling for earnings of $0.98, up from $0.90 during the same period last year. The stock is down 7.2% on the year.
KMX was recently trading at $60.18, down $8.93 from its 12-month high and $15.12 above its 12-month low. Technical indicators for KMX are bullish with a weak upward trend. The stock has recent support above $59.75 and recent resistance below $61.95. Of the 13 analysts who cover the stock, six rate it a "strong buy", one rates it a "buy", five rate it a "hold", and one rates it a "strong sell". The stock receives S&P Capital IQ's 3 STARS "Hold" ranking.
KMX shares have been weak so far this year, and the stock's P/E has fallen to 18.5, which should limit additional downside barring a huge earnings miss. The company has posted better than expected profits the last two quarters, and sales improved last quarter. The street seems to expect another earnings beat, with a whisper number of $1.00, which is two pennies above the consensus. The auto sector remains OK, but there are concerns on what impact rising interest rates will have on the sector moving forward. Wall Street sees a lot of upside in the stock, setting an average price target of $67.27 on the stock, which suggests shares are undervalued by as much as 11.8%.
Stock Only Trade
If you're looking to establish a long stock position in KMX, consider buying the stock under $60.00. Sell if it falls below $54.00 or take profits if it gets to $69.00.
If you are looking for a bullish hedged option trade on KMX, consider an October 45/50 bull-put credit spread for a 60-cent credit. That's a potential 13.6% return (39.5% annualized*) and the stock would have to fall 15.9% to cause a problem.
If you are looking for a bearish hedged option trade on KMX, consider an October 70/72.50 bear-call credit spread for a 40-cent credit. That's a potential 19.1% return (55.2% annualized*) and the stock would have to climb 17.0% to cause a problem.
Covered Call Trade
To purchase the stock with a lower cost basis, consider an October $60.00 covered call. Buy KMX shares (typically 100 shares, scale as appropriate), while selling the October $60.00 call for a debit of $54.85 per share. The trade has a target assigned return of 9.3%, and a target annualized return of 27.3% (for comparison purposes only).