CarMax reports third-quarter earnings December 21

What's Happening

Auto retailer CarMax ( KMX ) will report its third-quarter numbers December 21. The company will report before the market open, with the consensus calling for earnings of $0.82 per share, up from $0.72 during the same period last year. KMX has risen a modest 3.5% on the year.

Technical Analysis

KMX was recently trading at $67.70, down $9.94 from its 12-month high and $13.41 above its 12-month low. Overall technical indicators for KMX are bearish with a weak downward trend. The stock has recent support above $65.50 and recent resistance below $70.95. Of the 16 analysts who cover the stock, four rate it a "strong buy", two rate it a "buy", nine rate it a "hold", and one rates it a "strong sell". KMX gets a score of 53 from InvestorsObserver's Stock Score Report.

Analyst's Thoughts

While the auto sector has certainly cooled this year, conditions remain very upbeat. In November, industry-wide auto sales were an annualized 17.48 million, which was definitely a strong reading, but was down from an 18.1 million annualized rate in October, and lower than the 17.8 million analysts expected. October's number was inflated due to high demand for vehicle replacement from this year's big hurricanes. CarMax has reported better than expected profits and sales the last three quarters, but shares have trended lower over the last two months, and the company needs to post solid numbers for traders to come back into the stock and allow KMX to erase some of its recent losses. With the recent selling pressure, the stock's P/E has fallen to 18.5, which is reasonable with earnings expected to rise 6.5% next year, and by 13.1% per annum over the next five years.

Stock Only Trade

If you're looking to establish a long stock position in KMX, consider buying the stock under $67.75. Sell if it falls below $61.00 or take profits if it gets to $78.00.

Bullish Trade

If you want a bullish hedged trade on the stock, consider a January 55/60 bull-put credit spread for a 35-cent credit. That's a potential 7.5% return (78.5% annualized*) and the stock would have to fall 10.9% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider a January 75/80 bear-call credit spread for a $0.30 credit. That's a potential 6.4% return (66.6% annualized*) and the stock would have to rise 11.2% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a January $67.50 covered call. Buy KMX shares (typically 100 shares, scale as appropriate), while selling the January $67.50 call for a debit of $64.80 per share. The trade has a target assigned return of 4.2%, and a target annualized return of 44.7% (for comparison purposes only).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Originally published on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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