CarMax (KMX): Buy, Sell, or Hold Post Q4 Earnings?

As the market gears up for CarMax's Q4 earnings report, scheduled for September 26, 2024, investors are closely watching the used car dealership chain. The consensus outlook suggests a year-over-year increase in earnings, despite a projected 4% decline in revenues. This dichotomy sets the stage for a critical earnings call that could significantly impact CarMax's stock price.



Earnings Expectations and Revenue Concerns

CarMax is expected to post quarterly earnings of $0.84 per share, representing a 12% year-over-year increase. However, revenues are projected to fall to $6.79 billion, down 4% from the previous year. This revenue decline is a red flag for investors, as it suggests potential challenges in maintaining profitability. The consensus EPS estimate has been revised 2.25% lower over the last 30 days, reflecting analysts' collective reassessment of the company's earnings prospects. This downward revision indicates a more cautious outlook, which could temper investor enthusiasm.

Earnings Surprise Potential

The Zacks Earnings ESP (Expected Surprise Prediction) for CarMax stands at +2.93%, suggesting that analysts have recently become more bullish on the company's earnings prospects. However, the stock currently carries a Zacks Rank of #4 (Sell), making it difficult to conclusively predict an earnings beat. Historically, CarMax has beaten consensus EPS estimates just once in the last four quarters, with a surprise of -2.02% for the last reported quarter. This mixed track record adds to the uncertainty surrounding the upcoming earnings report.

Management's Discussion: The Key to Sustainability

While the earnings surprise is a critical factor, management's discussion of business conditions during the earnings call will be equally important. Investors will be looking for insights into the company's future prospects, any challenges it may be facing, and strategies to address them. A positive outlook from management could support a sustained increase in stock price, while concerns about economic conditions or operational issues could lead to a more cautious investor sentiment.

Historical Earnings Surprise: A Cautionary Tale

CarMax's historical earnings surprise data shows that the company has struggled to consistently beat consensus EPS estimates. This history of missing or narrowly beating estimates can influence investor expectations and the stock's reaction to the upcoming earnings report. Investors should be cautious about expecting a positive earnings surprise, as the company's track record suggests that this may not be a reliable indicator of future performance.

The Bottom Line: Buy, Sell, or Hold?

Given the mixed outlook, investors should approach CarMax's stock with caution. While the potential for a positive earnings surprise exists, the revenue decline and historical earnings surprise data suggest that the stock may not be a compelling earnings-beat candidate. Investors should pay close attention to management's discussion of business conditions and consider other factors, such as the company's revenue trends and the broader market environment, before making a decision to buy, sell, or hold CarMax's stock.



In conclusion, CarMax's Q4 earnings report presents a critical moment for investors. While the potential for a positive earnings surprise exists, the revenue decline and historical earnings surprise data suggest that the stock may not be a compelling earnings-beat candidate. Investors should approach CarMax's stock with caution and consider other factors before making a decision to buy, sell, or hold.