Post-Earnings Divide Opens on CarMax, Inc, AutoZone, Inc.

CarMax, Inc (NYSE:KMX) and AutoZone, Inc. (NYSE:AZO) are moving sharply in the wake of earnings

Sep 22, 2015 at 12:13 PM
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Automotive retailers CarMax, Inc (NYSE:KMX) and AutoZone, Inc. (NYSE:AZO) are fresh off reporting quarterly results, and their stocks' post-earnings moves couldn't be much different. While KMX is down 5.4% at $59.32, AZO has advanced 1.1% to trade at $736.57. Below, we'll look more closely at the news for both companies, review their technicals, and get a sense of how sentiment could impact them going forward.

KMX is reeling after the used car dealer's second-quarter revenue came up short of estimates -- overshadowing an earnings beat. With today's losses, the stock is now down nearly 11% year-to-date. Earlier, in fact, the shares tested their 100-day moving average, which contained a pullback in late August.

Option bulls are wringing their hands over the drop. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), KMX has racked up a 50-day call/put volume ratio of 1.70 -- higher than four-fifths of comparable readings from the last year. Should these bulls throw in the towel, it could exacerbate selling pressure.

This would be a welcome development for CarMax, Inc short sellers. During the latest reporting period, short interest on the stock popped 15.3%, and its short-interest ratio of 8.10 indicates it would take over eight sessions to cover these bearish bets, given typical trading volumes.

On the other side of the ledger, AZO's gains -- thanks to better-than-expected fiscal fourth-quarter results -- have extended the security's year-to-date lead to 19%. In fact, the shares are closing in on their all-time high of $754.90, notched on Aug. 19.

Option traders have grown increasingly optimistic toward the technical outperformer. AZO's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.53 rests just 5 percentage points from a 12-month peak. Likewise, the stock's Schaeffer's put/call open interest ratio checks in at 0.90 -- lower than 99% of comparable readings from the prior year.

Not everyone shares this positivity. Over three-quarters of analysts consider AutoZone, Inc. worthy of a tepid "hold" recommendation, while its consensus 12-month price target of $727.25 sits south of the current perch. This could pave the way for future upgrades and/or price-target hikes, which could spark increased buying demand. Likewise, AZO's short-interest ratio of 6.80 indicates there's plenty of sideline cash available to fuel a short-covering rally.

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