This Auto Dealer Is In A Buy Zone With Earnings Due

Used-car retailer CarMax (KMX) reports second-quarter earnings Thursday before the market opens. CarMax stock rose on Wednesday and was in a buy zone.


The company, the nation’s largest used-car retailer, reports after a spike in used-car prices, driven higher by pent-up demand after a year under lockdown due to the coronavirus pandemic. However, more recent signs have emerged that prices could be easing.

CarMax Earnings

Estimates: Wall Street expects CarMax earnings to rise 5% to $1.88 per share. Sales were expected to increase 29% to $6.909 billion.  Those would be big growth slowdowns a year-over-year comparisons growth more difficult.

Results: Due before the open.

CarMax Stock

CarMax stock rose 1.7% to 145.43 in the stock market today. Shares were within range of a 140.05 buy point of a cup base.

Shares have a strong 93 Composite Rating. Their EPS Rating is 85. The stock’s relative strength line has rebounded over the past few weeks.

Elsewhere, Autonation (AN) was up 4.4% to 127.87 on Wednesday. That stock was also within range of a 125.31 buy point of a cup base.

Group 1 Automotive (GPI) gained 2.2%. Penske Automotive (PAG) was up 2%. Both those stocks were extended from buy points.

CarMax stock jumped in June after it reported first-quarter results that beat expectations. Sales shot 138% higher to $7.7 billion from a year ago, and climbed 43% compared to two years earlier. Management attributed the gains to the broader demand, as well as government stimulus payments.

Digital Core

Prior to the company’s second-quarter earnings, CarMax stock analysts were watching its inventory levels, which remain tight.

CarMax has also been building out its online retail business, amid potential competition from Carvana (CVNA) and Shift (SFT). CarMax in August also said it planned to open a technology innovation center in Plano, Texas around the middle of this month. The used-car retailer is hiring more than 200 positions in connection with the opening.

CarMax said at the time that “these teams will advance technology solutions through machine learning, data science and software development to make the car-buying process easier.”

Used-Car Prices Ease

Used-car prices in the U.S. have surged over recent months, after customers initially put off making purchases last year during the pandemic. Higher prices for new cars, driven by a chip shortage after pandemic-induced factory shutdowns, have steered demand toward used cars, which also helped squeeze used-car prices upward.

CarMax stock, in the process, has been hovering near record highs. However, Edmunds this month said the average transaction price for used vehicles in August fell 3.4% from July to $26,308.

Analysts there said those who absolutely needed to buy a car likely did so over the summer. Remaining customers were likely waiting for better deals to emerge.

“The used market may have finally hit a peak in August, but the industry is still facing a long and uncertain road ahead,” Jessica Caldwell, executive director of insights at Edmunds, said in a statement this month.

“New-vehicle inventory is still very thin due to the global chip shortage, and challenges created by the Delta variant are placing further pressure on production timelines,” she continued. “The supply chain is so fragile at this point that it’s possible that we could see used vehicle prices and trade-in values creep up again.”

Follow Bill Peters on Twitter at @IBD_BPeters.


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