Please ensure Javascript is enabled for purposes of website accessibility

CarMax Earnings: An Early Look

By Dan Caplinger - Apr 8, 2013 at 10:10AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Can the independent auto dealer keep up in a strong environment for sales?

Spring is finally here, and a new earnings season is right around the corner. On Wednesday, CarMax (KMX -7.87%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

In an industry where finding the car you really want can be a nearly impossible challenge, CarMax sought out to make car-buying a lot easier. Initially focusing on used cars, CarMax now offers both new and used vehicles of all makes and models at one store. Let's take an early look at what's been happening with CarMax over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on CarMax

Analyst EPS Estimate

$0.46

Change From Year-Ago EPS

12.2%

Revenue Estimate

$2.73 billion

Change From Year-Ago Revenue

10.4%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will CarMax drive higher this quarter?
Analysts have been guardedly optimistic about CarMax in recent months, having raised their estimates for the just-ended quarter by a penny per share. Although they've kept their fiscal 2013 and 2014 consensus stable, the stock has responded positively, jumping more than 10% since the beginning of the year.

For years, CarMax has been dealing with a challenging environment for used cars. During the recession, the government's Cash for Clunkers program took a lot of used-car inventory off the market, leading to higher prices for used cars and thereby sending CarMax's sales plunging in 2009. Moreover, car owners held onto their vehicles longer, temporarily delaying sales for car dealers.

But more recently, conditions have started to turn in the industry. The recovery has accelerated somewhat, and strong sales of new autos have trickled down to the used-car market as well. Both CarMax and rival AutoNation (AN -10.00%) have notched new all-time highs, as those who put off car purchases have finally started to have to deal with the reality of aging vehicles costing more than they're worth to maintain.

Still, competition is fierce in the dealership area. AutoNation is moving forward with plans to create a unified brand, giving up what used to be locally named dealerships in favor of a more concentrated marketing approach. Moreover, even Costco (COST -12.45%) has gotten involved in the car-selling business, offering an online research tool that will help facilitate contact between customers and Costco-approved dealers at a pre-negotiated price. Given how much of CarMax's appeal is its no-haggle policy, rival programs with the same benefits pose a true threat.

In CarMax's quarterly report, look closely at the company's latest sales figures. They'll be valuable not just for investors in the stock but also as a general gauge of used-car sales activity throughout the country. If weak sales surprise investors, it could be one more sign that the economic recovery is on shaky ground.

Click here to add CarMax to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

CarMax Inc. Stock Quote
CarMax Inc.
KMX
$89.80 (-7.87%) $-7.67
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$429.40 (-12.45%) $-61.07
AutoNation, Inc. Stock Quote
AutoNation, Inc.
AN
$110.39 (-10.00%) $-12.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
349%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.