Psst! Hey, buddy, wanna buy a car? Well, how about a car stock? As it happens, we've got one hot little number, Motley Fool Inside Value recommendation CarMax (NYSE:KMX), reporting Q4 and full-year 2006 numbers tomorrow before market-open. Let me tell you a little about it.

What analysts say:

  • Buy, sell, or waffle? Ten analysts follow CarMax. Two say "buy," two more say "sell," and the other six say "hold."
  • Revenues. Fourth-quarter revenues are predicted to climb 9% versus last year, to $1.54 billion.
  • Earnings. Quarterly profits are expected to do much better, with a 32% rise to $0.37 per share being forecast.

What management says:
Most car dealers start with the puffery and leave the fine print for after you're already in love with the car. Not CarMax. The company began its fourth-quarter guidance back in December, when it predicted that "unit comps" -- meaning comparable numbers of vehicles sold by established stores, rather than comparable revenues from the same -- would range from -4% to +2%, and that profits per share would range from $0.25 to $0.31.

Earlier this month, CarMax raised that earnings guidance substantially, despite reaffirming that unit comps would decline by 3% for the quarter. So at last report, CarMax was looking for about $0.38 per share in profits. Both press releases tagged wholesale vehicle sales as contributing significantly to the company's profits.

What management does:
This stock's a real hot rod. Not. Zero to 60? Fuhggedaboudit. This company goes from 2.2% net margins to, um, 2.2% net margins in 18 months. But you can't blame CarMax for this. Fact of the matter is, the company has steadily increased both its rolling gross and operating margins over time. And the only reason the net hasn't budged, it appears, is that the company's tax liability increased much more quickly than sales did in the past two quarters.

Margins %

8/04

11/04

2/05

5/05

8/05

11/05

Gross

13.6

13.7

13.7

13.7

13.8

14

Op.

3.5

3.4

3.5

3.5

3.6

3.7

Net

2.2

2.1

2.1

2.1

2.2

2.2
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
There's not much CarMax can do about the taxes. So tomorrow, let's focus on what the company does have some control over: comparable sales. A 3% decline in unit comps falls well short of the company's high hopes of perhaps booking a 2% increase. We'll want to read the earnings release carefully to learn why, precisely, it failed to sell as much as it had hoped this past quarter.

Competitors:

  • AutoNation (NYSE:AN)
  • United Auto Group (NYSE:UAG)
  • America's Car-Mart (NASDAQ:CRMT)

CarMax is aMotley Fool Inside Valuepick. To see what other stocks drive value guru Philip Durell, sign up for a free 30-day guest pass.

Fool contributorRich Smithhas no interest, short or long, in any company named above.