Worries About Earnings Growth Potential and Financial Market Dysfunctions Lead the Market

Bulls continue to face strong headwinds amid worries about earnings growth potential and financial market dysfunctions.

Apple Selloff

Investors seemed particularly caught off guard by a rare downgrade to Apple‘s stock by Bank of America following reports of low iPhone demand. The resulting selloff left the stock down almost -5% and wiped roughly -$120 from Apple’s market cap. Apple is of course America’s most valuable publicly traded company, which means it is the most heavily weighted stock in the S&P 500, accounting for over 7% of the index’s total market value.

Naturally, a big selloff in Apple is going to drag on the broader market. BofA’s downgrade also highlighted bigger concerns that are likely to weigh on other companies’ profitability in the quarters ahead, most notably slower business and consumer spending, and a stronger US dollar.

Bears are quick to point out that early earnings results are already revealing weaker-than-expected Q3 results. Nike‘s results unveiled ongoing supply chain problems as well as lingering excess inventories and currency headwinds. CarMax yesterday was the latest in a long list of companies warning of increasing “affordability challenges” for consumers amid the highest inflation levels in some four decades and rising borrowing costs.

Declining affordability was a key reason behind Moody’s downgrade yesterday of the entire global automotive industry from “stable” to “negative”. The auto industry, similar to Apple, Nike, and most other companies, is also struggling with ballooning costs related to raw material shortages, tight labor markets, and skyrocketing energy prices.

Bottom line, the outlook for earnings in upcoming quarters is fading, making it tough for investors to justify pushing prices any higher at this point. Like I’ve mentioned many times, an earnings recession could actually be worse for the stock market than an actual full-blown economic recession.

Is the Financial System at Risk?

Wall Street also remains nervous about contagion spreading from bond and currency market dysfunctions in the UK, Italy, Japan, China and others.

While every country has unique problems that are partially responsible for recent volatility, it also partially stems from the aggressive monetary tightening being conducted by most Western central banks.

In general, a rising rate environment tends to uncover imbalances and systematic risks that might be unknowingly lurking in financial systems. Just think back to the subprime mortgage crisis and Lehman Brothers collapse in 2008 that eventually erupted into a full-blown global financial meltdown.

Some contend it began when the Fed started lifting rates from 2004 to 2006, going from 1% to 5.25%, which led to an extreme slowdown in the housing market and ballooned the payments on subprime mortgages into unaffordable territory…and the contagion just spread from there.

So when financial markets start acting strangely and central banks are making emergency interventions, investors can be understandably nervous that an even bigger problem might be around the next corner.

On the geopolitical front, Russia is expected to formally annex four Ukraine regions in a ceremony today that’s supposed to include an address from President Vladimir Putin. Some think Putin may offer to enter a ceasefire with Ukraine. While Ukraine is unlikely to agree, they could face pressure from western countries that are worried about the threat of a wider conflict with Russia.

Data to Watch

Looking ahead to next week, the main highlight will be the September Employment Situation due out next Friday. There is a slew of other key data due as well, including ISM Manufacturing and Construction Spending on Monday; Factory Orders and the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday; ADP’s private payroll report, the US Trade Balance, and ISM Non-Manufacturing on Wednesday; and Wholesale Inventories and Consumer Credit on Friday. The only earnings of note next week are Conagra Brands and McCormick & Co. on

S&P 500 (SPY) Dives To 3635 As Initial Jobless Claims Decline

Key Insights

  • S&P 500 found itself under pressure after the release of Initial Jobless Claims report.
  • Auto stocks are losing ground as traders react to the disappointing report from CarMax. 
  • A move below the support at 3635 will open the way to the test of the next support level at 3600.

Traders Worry About Hawkish Fed

S&P 500 is down by more than 2% in today’s trading session as traders react to the better-than-expected Initial Jobless Claims report.

The report indicated that 193,000 Americans filed for unemployment benefits in a week, compared to analyst consensus of 215,000. The Fed has previously stated that job market remained too tight. The report confirmed that the job market was in good shape. This is bearish for stocks as the Fed is forced to raise rates aggressively to cool demand and fight inflation.

Auto stocks found themselves under pressure after CarMax report missed analyst estimates on both earnings and revenue. The stock is down by 23% in today’s trading session. Tesla, General Motors, and Ford are down by 5-6% as traders fear that rising loan rates have started to put pressure on demand for vehicles.

Tech stocks have also moved lower today, which is not surprising as the market prepares for higher interest rates. AMD, NVIDIA, and Apple were among the biggest losers in this market segment today.

The current sell-off is broad, and even energy stocks are under pressure despite the rebound in oil markets. The market views Fed’s actions as the biggest danger for stocks, so any news that signal that Fed will continue to raise rates aggressively lead to a sell-off.

S&P 500 Tests Support At 3635

S&P 500

S&P 500 continues its attempts to settle below the support level at 3635. RSI is close to the oversold territory, but there is enough room to gain additional downside momentum in case the right catalysts emerge.

If S&P 500 settles below 3635, it will move towards the next support level at 3600. A successful test of this level will push S&P 500 towards the support at 3580.

On the upside, the previous support at 3660 will serve as the first resistance level for S&P 500. In case S&P 500 climbs back above this level, it will head towards the next resistance at 3700. A move above 3700 will open the way to the test of the resistance at 3725.

For a look at all of today’s economic events, check out our economic calendar.

Online Strategy Helping CarMax Move from Defense to Offense, Says Morgan Stanley

Morgan Stanley while reiterating an “Overweight” rating and the price target of $165 on CarMax in its last week’s report said the Richmond, Virginia-based used car company’s online strategy is helping it move from defense to offense.

This comes just after the used-car retailer reported fiscal third-quarter earnings results on Wednesday, December 22. The company said its net earnings per share came in at $1.53, beating the Wall Street consensus estimate of $1.50.

The company said its revenue jumped nearly 65% to $8.53 billion for the November-end quarter from $5.18 billion a year ago. That was also above the market expectations of $7.89 billion.

Still, CarMax continues to experience margin pressure due to expensive inventory procurement and a higher working capital burden on free cash flow.

“Management has executed exceptionally during the LTM to take advantage of an extremely strong macro environment (rise in used car prices, fiscal stimulus, shift to used vs. new). In CY 2022, we expect continued elevated spend in SG&A across: hiring workers, logistics, building out tech and website capabilities,” noted Adam Jonas, equity analyst at Morgan Stanley.

“We do expect revenue momentum to slow down, off a strong base in CY21. Nonetheless, we are bullish on KMX’s omnichannel strategy and believe it has the network capability and infrastructure to leverage and become a successful platform for both online and in-store used car purchases. We expect KMX to continue to compound over the long-term and see KMX as a formidable player to CVNA, albeit becoming the number 2 competitor nationally in the medium to long-term.”

Morgan Stanley gave the stock price forecast of $250 under the bull scenario and $80 under the worst-case scenario. Other equity analysts also updated their stock price outlook. Wedbush slashed the target price to $140 from $160. RBC raised the target price to $157 from $156. JPMorgan lifted the price objective to $160 from $140.

Nine analysts who offered stock ratings for CarMax in the last three months forecast the average price in 12 months of $158.57 with a high forecast of $170.00 and a low forecast of $140.00.

The average price target represents a 25.54% change from the last price of $126.31. Of those nine analysts, seven rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

On Thursday, CarMax shares closed 1.22% lower at $126.31. The stock surged over 30% so far this year.

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omnichannel strategy, providing both online and physical dealer options to consumer,” Morgan Stanley’s Jonas added.

KMX has consistently generated >$2,000 GPU, and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omni-channel rollout.”

However, technical analysis suggests it is good to hold now as 100-day Moving Average and 100-200-day MACD Oscillator signals a mild selling opportunity.

Check out FX Empire’s earnings calendar

Earnings to Watch in Holiday-Shortened Week: Micron Technology, Nike, General Mills and CarMax in Focus

The following is a list of earnings slated for release December 20-24, along with a few previews. Although next week’s earnings are unlikely to have much of an effect on major market movements, it is sufficient to gauge investors’ sentiment.

Earnings Calendar For The Week Of December 20

Monday (December 20)

IN THE SPOTLIGHT: MICRON TECHNOLOGY, NIKE

MICRON TECHNOLOGY: The world’s leading semiconductor manufacturer is expected to report its fiscal first-quarter earnings of $2.01 per share, representing year-over-year growth of more than 155% from $0.78 per share seen in the same quarter a year ago.

The Boise Idaho-based semiconductor company is expected to post revenue growth of over 30% to around $7.7 billion from a year earlier. In the last two years, the company has topped expectations on earnings per share at all times.

“While the underlying demand trends are strong and producer inventory levels are low heading into a period of seasonal strength, there are some signs of inventory adjustments short term after customers-built inventory,” noted Joseph Moore, equity analyst at Morgan Stanley.

“We see demand growth on the back of seasonality, memory elasticity/higher content per unit, and low customer inventories, and very slow supply growth in DRAM given declines in capex. We continue to believe that memory stocks have a relatively well-defined earnings cycle, though highs and lows are likely to be better than they have been historically.”

NIKE: The world’s largest athletic footwear and apparel seller is expected to report earnings per share of $0.62 in the fiscal second quarter, which represents a year-over-year decline of over 20% from $0.78 per share seen in the same period a year ago.

The Beaverton, Oregon, footwear retailer would post revenue of $11.23 billion, down about 0.1% from a year earlier. For four quarters in a row, the company has exceeded expectations on earnings per share.

“We are raising our price target to $189 representing 40x our FY23E EPS of $4.73. We don’t believe management will make significant changes to its FY22 guidance but view the business as running above plan in N. America and Europe (EMEA). The gross margin could be a lever to raise back to prior guidance (+150bps at the high end). China is a point of uncertainty with investors and the model,” noted John Kernan, equity analyst at Cowen.

“We are raising our expectations for Q2, largely driven by an incrementally stronger outlook for N.A. and EMEA, with less conviction behind results in Greater China. We now model Q2 revenues +3% y/y ex FX to $11.52B vs consensus of $11.255B, driven by N.A. +2% (+3% vs 2019 compared to Q1’s +14% vs 2019), EMEA +1% (+17% vs 2019compared to Q1’s +19%), Greater China -2%, and APLA +10%.

We forecast gross margin expanding +130bps y/y, as higher full-price selling and DTC mix offsets higher freight costs and some product cost inflation (we include gross margin quarterly bps drivers in Fig 5). On a 2-year stack basis, product costs have deleveraged 240bps or more in each of the last two quarters. We see SG&A dollars growing +10% y/y to 31.1% of revenues (+204bps y/y). Ultimately, this drives EPS of $0.75 vs consensus of $0.63 – we model a 100bps impact from FX.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 20

TICKER COMPANY EPS FORECAST
MU Micron Technology, Inc.(MU) $2.01
NKE NIKE, Inc.(NKE) $0.63
BRZE Braze, Inc.(BRZE) $0.63

Tuesday (December 21)

IN THE SPOTLIGHT: GENERAL MILLS

The Minneapolis Minnesota-based company, General Mills, is expected to report its fiscal second-quarter earnings of $1.05 per share down from $1.06 per share seen in the same period a year ago.

The consumer foods manufacturer’s revenue would decline over 2% year-over-year to around $4.8 billion up from $4.72 billion seen a year earlier. In the last two years, the company has missed earnings per share estimates only once.

“While growth abounded for domestic food manufacturers as consumers rushed to stock up on essential wares as COVID-19 took hold, it hasn’t been a pure panacea for this intensely competitive space. And we think the future trajectory hinges on which of the trends that took centre stage the past few years will hold,” noted Erin Lash, Sector Director at Morningstar.

“In this context, while we concede many consumers honed their cooking skills while sheltering at home, as busy schedules resume, we think food consumption will revert such that a greater portion of budgets is expended outside of the home, in line with pre-pandemic levels. Further, although grocers simplified shelf assortments to maximize productivity during the peak in demand, we think the variety will return as supply chains normalize.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 21

TICKER COMPANY EPS FORECAST
FDS FactSet Research Systems Inc.(FDS) $2.99
GIS General Mills, Inc.(GIS) $1.05
NEOG Neogen Corporation(NEOG) $0.17

Wednesday (December 22)

IN THE SPOTLIGHT: CARMAX

The used-car retailer CarMax is expected to report its fiscal third-quarter earnings of $1.49 per share, which represents year-over-year growth of about 5% from $1.42 per share seen in the same period a year ago.

The Richmond, Virginia-based used car giant would post year-over-year revenue growth of nearly 50% to $7.63 billion in the quarter ended November 2021. In the last two years, the company has exceeded expectations on earnings per share with an average surprise of over 80%.

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omnichannel strategy, providing both online and physical dealer options to consumers,” noted Adam Jonas, equity analyst at Morgan Stanley.

KMX has consistently generated >$2,000 GPU and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omni-channel rollout.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 22

TICKER COMPANY EPS FORECAST
CTAS Cintas Corporation(CTAS) $2.62
KMX CarMax, Inc.(KMX) $1.5
PAYX Paychex, Inc.(PAYX) $0.79

Thursday (December 23)

No major earnings are scheduled for release.

Friday (December 24)

The New York Stock Exchange and Nasdaq observe Christmas, markets will be closed on Friday.

CarMax’s Stock Is Well Worth Watching Ahead of Q3 Earnings; Target Price $158

The used-car retailer CarMax is expected to report its fiscal third-quarter earnings of $1.49 per share, which represents year-over-year growth of about 5% from $1.42 per share seen in the same period a year ago.

The Richmond, Virginia-based used car giant would post year-over-year revenue growth of nearly 50% to $7.63 billion in the quarter ended November 2021. In the last two years, the company has exceeded expectations on earnings per share with an average surprise of over 80%.

CarMax’s omni-channel offerings to improve the customer shopping experience and opening of new stores will fuel its growth prospects. (But) CarMax is likely to bear the brunt of rising SG&A expenses and Capex which might deteriorate its already weak balance sheet,” noted analysts at ZACKS Research.

It is worth noting that better-than-expected results, which will be announced on Wednesday, Dec 22 before the bell, could help the stock recoup recent losses. At the time of writing, CarMax stock was traded 1.5% higher at $144.10 on Thursday. It soared over 50% so far this year.

Analyst Comments

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omni channel strategy, providing both online and physical dealer options to consumers,” noted Adam Jonas, equity analyst at Morgan Stanley.

KMX has consistently generated >$2,000 GPU and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omni-channel rollout.”

CarMax Stock Price Forecast

Nine analysts who offered stock ratings for CarMax in the last three months forecast the average price in 12 months of $158.43 with a high forecast of $165.00 and a low forecast of $150.00.

The average price target represents a 10.32% change from the last price of $143.61. Of those nine analysts, seven rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $165 with a high of $250 under a bull scenario and $63 under the worst-case scenario. The firm gave an “Overweight” rating on the IT Services company’s stock.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $160 from $140. Wedbush lifted the target price to $160 from $135. In October, RBC lowered the target price to $156 from $160.

Technical analysis suggests it is good to buy as 100-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity.

Check out FX Empire’s earnings calendar

CarMax Shares Slump Nearly 9% After Earnings Disappoint

CarMax shares slumped nearly 9% in pre-market trading on Thursday after the Richmond, Virginia-based used-car giant reported lower-than-expected earnings in the fiscal second quarter.

The United States’ largest used-car retailer reported quarterly adjusted earnings of $1.72​​ per share, missing the Wall Street consensus estimates of $1.90 per share.

Following this, CarMax shares slumped 8.66% to $133.81 in pre-market trading on Thursday.

CarMax said its revenue jumped nearly 50% to $7.99 billion from a year earlier, above the market expectations of $6.87 billion.

The company said its retail used unit sales increased 6.7% to a second-quarter record of 231,797 vehicles and comparable store unit sales increased 6.2% compared with the same quarter a year ago. Wholesale units increased 41.4% to 188,098 vehicles from the prior year second quarter, an all-time high quarterly record.

The company will release its results for the third quarter ending November 30, 2021, on Wednesday, December 22, 2021.

Analyst Comments

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omnichannel strategy, providing both online and physical dealer options to consumers,” noted Adam Jonas, Equity Analyst at Morgan Stanley.

KMX has consistently generated >$2,000 GPU and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omnichannel rollout.”

CarMax Stock Price Forecast

Three analysts who offered stock ratings for CarMax in the last three months forecast the average price in 12 months of $175.00 with a high forecast of $200.00 and a low forecast of $150.00.

The average price target represents a 31.33% change from the last price of $133.25. From those three analysts, two rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $165 with a high of $250 under a bull scenario and $63 under the worst-case scenario. The firm gave an “Overweight” rating on the used-car retailer’s stock.

Several other analysts have also updated their stock outlook. Wedbush raised the price target to $150 from $130. Guggenheim lifted the target price to $154 from $152. BofA Global Research upped the price objective to $200 from $150.

Check out FX Empire’s earnings calendar

CarMax Could Scale to Fresh Record High on Upbeat Q2 Earnings; Target Price $165

The United States’ largest used-car retailer, CarMax is expected to report its fiscal second-quarter earnings of $1.95 per share, which represents year-over-year growth of about 9% from $1.79 per share seen in the same period a year ago.

The Richmond, Virginia-based used car giant would post year-over-year revenue growth of over 28% to $7.0 billion from $5.37 billion seen a year earlier. For four quarters in a row, the company has exceeded expectations on earnings per share with an average surprise of over 38%.

CarMax’s omni-channel offerings to improve the customer shopping experience and opening of new stores will fuel its growth prospects. (But) CarMax is likely to bear the brunt of rising SG&A expenses and Capex which might deteriorate its already weak balance sheet,” noted analysts at ZACKS Research.

CarMax’s better-than-expected results, which will be announced on Thursday, Sept 30, could help the stock hit new all-time highs. The company’s shares surged over 56% so far this year and it hit a record high of $146.91 on Monday.

Analyst Comments

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omnichannel strategy, providing both online and physical dealer options to consumers,” noted Adam Jonas, Equity Analyst at Morgan Stanley.

KMX has consistently generated >$2,000 GPU and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omni-channel rollout.”

CarMax Stock Price Forecast

Four analysts who offered stock ratings for CarMax in the last three months forecast the average price in 12 months of $165.00 with a high forecast of $200.00 and a low forecast of $145.00.

The average price target represents a 13.61% change from the last price of $145.24. From those four analysts, three rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $165 with a high of $250 under a bull scenario and $63 under the worst-case scenario. The firm gave an “Overweight” rating on the used-car retailer’s stock.

Several other analysts have also updated their stock outlook. Wedbush raised the price target to $150 from $130. Guggenheim lifted the target price to $154 from $152. BofA Global Research upped the price objective to $200 from $150.

Check out FX Empire’s earnings calendar

Earnings Week Ahead: IHS Markit, Micron, CarMax and Bed Bath & Beyond in Focus

Earnings Calendar For The Week Of September 27

Monday (September 27)

Ticker Company EPS Forecast
HRB H&R Block -$0.34

Tuesday (September 28)

IN THE SPOTLIGHT: IHS MARKIT, MICRON TECHNOLOGY

IHS MARKIT: The leading provider of data and analytics to corporate is expected to report its fiscal third-quarter earnings of $0.83 per share, which represents a year-over-year decline of about 8% from $0.77 per share seen in the same period a year ago.

The company is expected to post revenue growth of over 9% to $1.17 billion. According to ZACKS Research, in all of the company’s last four quarters, earnings surpassed the consensus estimate. Earnings surprise has averaged 5.4% over its trailing four quarters.

IHS Markit is a leading supplier of information services across multiple verticals with an attractive business model. We believe the synergy potential with SPGI will lead to cost savings and access to underpenetrated revenue markets,” noted Toni Kaplan, equity analyst at Morgan Stanley.

“Recovery in auto sales from COVID-19 is occurring faster than previously anticipated. We expect the energy market to become more accommodative in ’21 and ’22 following the crude oil price rebound.”

MICRON TECHNOLOGY: The world’s leading semiconductor manufacturer is expected to report its fiscal fourth-quarter earnings of $2.33 per share, representing year-over-year growth of more than 115% from $1.08 per share seen in the same quarter a year ago.

The semiconductor company is expected to post revenue growth of over 30% to around $8.2 billion from a year earlier.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE SEPTEMBER 28

Ticker Company EPS Forecast
SMIN Smiths £39.71
INFO IHS Markit Ltd $0.83
SNX SYNNEX $2.03
THO Thor Industries $2.98
UNFI United Natural Foods $0.80
MU Micron Technology $2.33

Wednesday (September 29)

Ticker Company EPS Forecast
JBL Jabil Circuit $1.38
CTAS Cintas $2.75
WOR Worthington Industries $1.86
MLHR Herman Miller $0.54
NXT NEXT £37.38

Thursday (September 30)

IN THE SPOTLIGHT: CARMAX, BED BATH & BEYOND

CARMAX: The United States’ largest used-car retailer is expected to report its fiscal second-quarter earnings of $1.85 per share, which represents year-over-year growth of over 3% from $1.79 per share seen in the same period a year ago.

The Goochland County-based used car giant would post year-over-year revenue growth of over 28% to $7.0 billion.

BED BATH & BEYOND: The U.S.-based merchandise retailer is expected to report its fiscal second-quarter earnings of $0.52 per share, which represents year-over-year growth of around 4% from $0.50 per share seen in the same period a year ago.

The company that operates many stores in the United States, Canada, Mexico, and Australia would see a revenue decline of about 23% to around $2.5 billion.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE SEPTEMBER 30

Ticker Company EPS Forecast
KMX CarMax $1.85
MKC McCormick $0.73
PAYX Paychex $0.80
BBBY Bed Bath & Beyond Inc. $0.52

Friday (October 1)

No major earnings are scheduled for release.

CarMax Earnings to Rise to $1.63 a Share in Q1; Buy with Target Price $144

The United States’ largest used-car retailer CarMax is expected to report its fiscal first-quarter earnings of $1.63 per share, which represents year-over-year growth of over 600% from $0.23 per share seen in the same period a year ago.

The Richmond, Virginia-based used car giant would post year-over-year revenue growth of over 94% to $6.2 billion. In the last one year, on average, CarMax has beaten earnings 75% of the time and beaten revenue all the time.

CarMax shares surged over 26% so far this year. The stock was trading about 1% higher at $119.43 on Thursday.

Analyst Comments

“Store-expansion initiatives and high-quality product offerings are likely to boost CarMax’s prospects. The company’s omni-channel offerings to improve customer shopping experience are likely to bolster revenues. Increasing sales of used vehicles remain a bright spot for the firm. The acquisition of remaining shares of Edmunds, which is expected to be closed in June 2021, would further solidify CarMax’s position in the used auto ecosystem,” noted equity analysts at ZACKS Research.

“However, the auto parts retailer is likely to bear the brunt of rising selling, general & administrative (SG&A) expenses. The company projects capital spending to shoot up in fiscal 2022 amid advanced digital initiatives and store expansion efforts. High debt levels also play a spoilsport. As such, the stock warrants a cautious stance at the moment.”

CarMax Stock Price Forecast

Seven analysts who offered stock ratings for CarMax in the last three months forecast the average price in 12 months of $144.00 with a high forecast of $154.00 and a low forecast of $130.00.

The average price target represents 20.48% from the last price of $119.52. Of those seven analysts, five rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $165 with a high of $250 under a bull scenario and $63 under the worst-case scenario. The firm gave an “Overweight” rating on the used-car retailer’s stock.

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omni channel strategy, providing both online and physical dealer options to consumer,” noted Adam Jonas, equity analyst at Morgan Stanley.

KMX has consistently generated profitability and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omni-channel rollout.”

Several other analysts have also updated their stock outlook. Oppenheimer upped their price objective to $153 from $130 and gave the company an “outperform” rating. Royal Bank of Canada increased their target price to $148 from $140 and gave the stock an “outperform”. Wedbush reiterated a “neutral” rating and set a $130 target price.

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: Darden Restaurants, Nike, FedEx and CarMax in Focus

Earnings Calendar For The Week Of June 21

Monday (June 21)

There are no major earnings scheduled.

Tuesday (June 22)

Ticker Company EPS Forecast
SMDS Ds Smith £12.65
KFY Korn Ferry International $0.98
AVAV AeroVironment $0.81
KWHIY Kawasaki Heavy Industries ADR -$0.16

Wednesday (June 23)

Ticker Company EPS Forecast
PDCO Patterson Companies $0.51
INFO IHS Markit Ltd $0.80
WGO Winnebago Industries $1.76
KBH Kb Home $1.33
FUL HB Fuller $0.92
OMVJF OMV $0.97

Thursday (June 24)

IN THE SPOTLIGHT: DARDEN RESTAURANTS, NIKE, FEDEX

DARDEN RESTAURANTS: The Orlando-based restaurant operator is expected to report its fiscal fourth-quarter earnings of $1.76 per share, which represents year-over-year growth of about 242%, up from a loss of -$1.24 per share seen in the same period a year ago.

The multi-brand restaurant operator would post year-over-year revenue growth of nearly 70% to $2.16 billion. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 270%.

“Best in class casual dining operator with strong brand portfolio. As the largest CDR operator, DRI has substantial scale advantages in shared services which can be levered in a post-COVID-19 environment by improving margins and gaining market share. Lead brand Olive Garden (~50% of sales) garners top consumer scores, its comp sales have historically outpaced the industry and recent cost savings have improved unit economics,” noted John Glass, equity analyst at Morgan Stanley.

“Acquisition of Cheddar’s has been more challenging than initially expected, though still provides longer-term growth potential. Strong position relative to peers, scale, operational leadership, unit growth and structurally higher margins drive our OW rating.”

NIKE: The world’s largest athletic footwear and apparel seller is expected to report its fiscal fourth-quarter earnings of $0.51 per share, which represents year-over-year growth of 200%, up from a loss of -$0.51 per share seen in the same period a year ago.

The Beaverton, Oregon-based footwear retailer would post year-over-year revenue growth of over 75% to $11.8 billion.

“There are many moving pieces in the Nike (NKE) model including an easy comparison from Q4:20 and shipment shifts into Q4:21 but our proprietary data on China through May 2021 is pointing to a continued deceleration in Tmall GMV, negative social media sentiment in China, and poor Baidu search trends. FY22 consensus EPS estimates appear too high. We are lowering our price target to $145,” noted John Kernan, equity analyst at Cowen.

FEDEX: The Memphis, Tennessee-based multinational delivery services company FedEx is expected to report its fiscal fourth-quarter earnings of $4.97 per share, which represents year-over-year growth of over 96% from $2.53 per share seen in the same period a year ago.

The delivery firm would post revenue growth of over 20% to $21.47 billion. In the last four quarters, on average, FedEx has beaten earnings estimates over 41%.

“We expect a beat for F4Q21 as many of the LTM trends we have seen will continue. However, more than ever, 4Q results are likely not as important as the FY22 guide, which will be the critical test of how much of the pandemic tailwinds mgmt. believes are sustainable (and deserves to be priced in),” noted Simeon Gutman, equity analyst at Morgan Stanley.

“We see EBIT growth through YE of FY21 driven by both margin improvement and vol. driven rev. growth which is helped by limited Airfreight capacity and an eCommerce surge, though yields are mixed. We continue to see secular threats to Parcel and remain skeptical that these trends will be sustainable but believe that until there is evidence of a reversal in earnings momentum, the stock can trade at its historical multiple (14-15x PE) on current EPS.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 24

Ticker Company EPS Forecast
ACN Accenture $2.24
DRI Darden Restaurants $1.76
WOR Worthington Industries $1.68
NKE Nike $0.51
FDX FedEx $4.97
SNX SYNNEX $1.93
BBBY Bed Bath & Beyond Inc. $0.08

Friday (June 25)

IN THE SPOTLIGHT: CARMAX

The United States’ largest used-car retailer is expected to report its fiscal first-quarter earnings of $1.63 per share, which represents year-over-year growth of over 600% from $0.23 per share seen in the same period a year ago.

The Goochland County-based used car giant would post year-over-year revenue growth of about 92% to $6.19 billion.

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omnichannel strategy, providing both online and physical dealer options to consumer,” noted Adam Jonas, equity analyst at Morgan Stanley.

CarMax (KMX) has consistently generated profitability and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omnichannel rollout.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 25

Ticker Company EPS Forecast
PAYX Paychex $0.67
KMX CarMax $1.63

 

Used-Car Retailer CarMax Q4 Sales to Grow 4%, Earnings to Fall

The United States’ largest used-car retailer U.S. CarMax is expected to report its fourth-quarter earnings of $1.25 per share, which represents a year-over-year decline of about 4% from $1.30 per share seen in the same quarter a year ago; however, sales will likely grow 4% year over year.

For the 2021 fiscal year, CarMax is expected to post an EPS of $4.50, down from $5.33, on sales of $18.94 billion. According to ZACKS Research, the used-car retailer’s fourth-quarter earnings is pegged at $1.27 cents on revenues of $5.15 billion.

CarMax shares, which rose more than 7% in 2020, surged over 42% so far this year.

CarMax Stock Price Forecast

Five analysts who offered stock ratings for CarMax in the last three months forecast the average price in 12 months of $135.00 with a high forecast of $140.00 and a low forecast of $130.00.

The average price target represents a 0.64% increase from the last price of $134.14. Of those five analysts, four rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $165 with a high of $250 under a bull scenario and $63 under the worst-case scenario. The firm gave an “Overweight” rating on the used-car retailer’s stock.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $115 from $110. Guggenheim lifted the target price to $143 from $117. Bank of America reduced their price target to $121 from $130 and set a “buy” rating. Argus raised their price target to $110 from $105. Oppenheimer issued a “buy” rating and a $130 target price for the company.

Analyst Comments

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omnichannel strategy, providing both online and physical dealer options to consumers,” noted Adam Jonas, equity analyst at Morgan Stanley.

CarMax (KMX) has consistently generated profitability and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omnichannel rollout.”

Check out FX Empire’s earnings calendar

Earnings to Watch in Holiday-Shortened Week: Lululemon, Walgreens Boots and CarMax in Focus

Earnings Calendar For The Week Of March 29

Monday (March 29)

No major earnings scheduled for release.

Tuesday (March 30)

IN THE SPOTLIGHT: LULULEMON ATHLETICA

The Vancouver-based healthy lifestyle-inspired athletic apparel company Lululemon Athletica is expected to report its fourth-quarter earnings of $2.48 per share, which represents year-over-year growth of about 9% from $2.28 per share seen in the same quarter a year ago.  In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 12%.

Lululemon would post year-over-year revenue growth of about 19% year-on-year to around $1.7 billion.

“We see upside to both Street 4Qe EPS & mgmt. guidance, as revenue, GM, & SG&A assumptions appear conservative. The recent pullback may make for an attractive entry point, though we acknowledge valuation remains full at 46x ’21e P/E. Stay Equal-weight for now, & trim price target to $386 on rising rates/WACC,” said Kimberly C Greenberger, equity analyst at Morgan Stanley.

“Expanded eComm capabilities, improved supply chain, better inventory management, and product initiatives led to enviable ’18-’19 performance and a robust return to pre-COVID-19 levels in 3Q20, making +mid-high-teens comps seem normal. Still, the current valuation appears extreme, so we stay EW. Compelling LT and post-COVID-19 growth opportunity driven by three factors: international expansion (maybe less evident in ‘20e given COVID-19 outbreak), digital growth, and product innovation. LULU dominates the NA athletic yoga apparel category due to its unique brand positioning and fashionable products, and its athleisure focus is further advantaged in a COVID-19 affected world.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 30

Ticker Company EPS Forecast
BNTX BioNTech SE -$0.17
MKC McCormick $0.58
ASO Avesoro Resources $0.62
LULU Lululemon Athletica $2.48
IGMS IGM Biosciences -$0.74
PVH PVH -$0.37
BACHY Bank China ADR $0.46
CEA China Eastern Airlines -$0.49
GGB Gerdau $0.17
CUK Carnival -$1.54
CCL Carnival -$1.54
CCL Carnival -£1.12

 

Wednesday (March 31)

IN THE SPOTLIGHT: WALGREENS BOOTS ALLIANCE

Deerfield, Illinois-based retail pharmacy provider is expected to report its fiscal second-quarter earnings of $1.13 per share, which represents a year-over-year decline of over 25% from $1.52 per share seen in the same quarter a year ago.

The largest U.S. drugstore chain’s revenue would decline over 5% year-over-year to around $33.8 billion.

Walgreens Boots continues to maintain its estimates of low single-digit growth in adjusted earnings per share at CER in fiscal 2021. The Zacks Consensus Estimate for the same is currently pegged at $4.79. Although the company anticipates higher adverse impacts of the pandemic-led disruptions (including a weaker cough, cold, and flu season) during the second quarter of fiscal 2021, the adjusted earnings per share during the first half of fiscal 2021 is likely to be in line with the company’s earlier expectations,” noted analysts at ZACKS Research.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MARCH 31

Ticker Company EPS Forecast
WBA Walgreens Boots Alliance $1.13
AYI Acuity Brands $1.70
UNF UniFirst $1.68
MU Micron Technology $0.93
VRNT Verint Systems $0.81
CIG Companhia Energetica Minas Gerais $0.03
ZNH China Southern Airlines -$1.41

 

Thursday (April 1)

IN THE SPOTLIGHT: CARMAX

The used-car retailer’s fourth-quarter earnings is pegged at $1.27 cents on revenues of $5.15 billion, according to ZACKS Research.

“Store-expansion initiatives and high-quality product offerings are likely to boost CarMax’s prospects. The company’s omnichannel offerings to improve customer shopping experience is likely to bolster revenues. Increasing sales of used vehicles remain a bright spot for the firm. Solid performance from the wholesale segment also acts a booster,” noted analysts at ZACKS Research.

“Further, temporary cost-cut initiatives undertaken by the firm may offer respite. However, the auto parts retailer is likely to bear the brunt of rising selling, general & administrative (SG&A) expenses as the company resumes new store expansion. Also, the second wave of coronavirus could impact the company’s sales and profits. High debt levels also play a spoilsport. As such, the stock warrants a cautious stance.”

Friday (April 2)

No major earnings scheduled for release. The stock market is closed on April 2 for Good Friday.

Used-Car Retailer CarMax Shares Plunge Over 8% as COVID-19 Hurts Store Sales

The United States’ largest used-car retailer CarMax reported better-than-expected earnings in the third quarter of the fiscal year 2021 but the Fortune 500 company’s same-store sales declined as a surge in COVID-19 cases constrained demand and resulted in tightened occupancy restrictions, sending its shares down over 8% on Tuesday.

The used-car retailer’s same-store used unit sales dipped 0.8% in the third quarter ended November 30, worse than the market expectations of a 3.5% growth, up from 11% jump in the same quarter a year ago.

However, CarMax’s 3Q EPS increased 36.5% year-over-year to $1.42 per share, better than the Wall Street consensus estimates of $1.14. The company’s revenues rose 8.2% year-over-year to $5.2 billion, topping analysts’ estimate of about $5 billion.

“We think the market on December 22 did not like the negative comparable store decline, but we don’t think it’s time to panic. Management said the metric was growing at about a mid-single-digit rate at the start of the quarter but slowed due to coronavirus restrictions and uncertainty about the election,” said David Whiston, sector strategist at Morningstar.

“We are raising our fair value estimate to $93 from $89 on the time value of money since our last update, higher fiscal  2021  and  2022  revenue,  and more  CarMax  Auto Finance income as a percent of revenue for fiscal 2021 and 2022 based on how reported results are trending. We expect good CAF results to continue given the low-interest-rate environment. In the quarter, CAF income grew 55%, and we calculate 19% growth excluding the impact of a large decline in the loan loss provision,” Whiston added.

CarMax shares closed 8.09% lower at $92.33 on Tuesday. However, the stock is up over 5% so far this year.

CarMax Stock Price Forecast

Nine analysts who offered stock ratings for CarMax in the last three months forecast the average price in 12 months at $120.33 with a high forecast of $180.00 and a low forecast of $73.00. The average price target represents a 30.33% increase from the last price of $92.33. From those nine equity analysts, seven rated “Buy”, one rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $165 with a high of $250 under a bull scenario and $63 under the worst-case scenario. The firm currently has an “Overweight” rating on the used-car retailer’s stock.

“While F&I drove the beat, investors focus on negative YoY comps and a guide for higher advertising costs and lower pricing ‘tests.’ All part of the sausage-making of true omnichannel execution, but it demands greater investor patience to see it through,” said Adam Jonas, equity analyst at Morgan Stanley

“Our 8% price target reduction reflects the changes to our forecasts that run through our 2030 DCF model. Our long-term assumptions are largely unchanged at an 11-year revenue CAGR through 2030 of 7.6%, 7.7% exit EBITDA margin assumption, 7.4% WACC and implied exit terminal EV/EBITDA multiple of 12.2x (terminal growth of 3.6%).”

Several other analysts have also recently commented on the stock. JP Morgan lowered the stock price forecast to $110 from $115. Wedbush raised the target price to $120 from $90. RBC increased price objective to $111 from $102. Oppenheimer restated a “buy” rating and issued a $130. Royal Bank of Canada boosted their target price to $110 from $100.

Analyst Comments

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect Carmax to successfully execute their Omnichannel strategy, providing both online and physical dealer options to the consumer,” Morgan Stanley’s Jonas added.

“Carmax has consistently generated profitability and has one of the strong balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing Carmax to achieve operating leverage, with upside from the omnichannel rollout.”

Check out FX Empire’s earnings calendar