CarMax Stock Kicks Into High Gear Before Earnings

Call volume is higher than usual in the options pits today

Deputy Editor
Jun 16, 2020 at 2:24 PM
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CarMax Inc (NYSE:KMX) is up 4.2% to trade at $96.76 at last check, following a price-target hike from Wedbush to $100 from $90, while reaffirming its "outperform" rating. The analyst in coverage expects strong sales based on his proprietary sales tracker, and will be paying attention to CarMax's fiscal first-quarter earnings, due out Friday, June 19 before the open. 

Carving out a channel of higher highs since a six-year low of $37.59 on March 18, KMX's pullback last week was cradled by its 200-day moving average. Now, today's pop has the equity back above the $95 region, where, before June, it hadn't traded since late February highs. Next up for the security is its Feb. 20 all-time high of $103.11. In the past three months, CarMax has gained 79.3%. 

KMX June 16

Analysts are bullish on KMX, with 11 out of 12 sporting a "buy" or better, and the remainder at a lukewarm "hold" rating. However, the 12-month consensus price target of $95.91 is a 0.7% discount to current levels, leaving plenty of room for another round of price target hikes. 

Meanwhile, short interest has fallen off 7.14% during the last two reporting periods. These 15.21 shares still account for 9.4% of the stock's available float, or over six days to buy back at KMX's average pace of trading. An unwinding of these bearish bets could help propel the stock higher as well.

Ahead of the event, options traders are targeting calls with gusto. So far, 1,935 calls have crossed the tape so far -- double the average intraday amount and almost triple the number of puts traded. Leading the charge are the weekly 6/26 and 7/02 104-strike calls, with new positions being opened at both. 

A look back at its past eight reports shows a split post-earnings response for KMX, which has ended 50% of the last eight next-day sessions higher -- though the past three sessions have been lower. The security has averaged a post-earnings swing of 5.2% in the last two years, regardless of direction. This time around, the options market is pricing in a much bigger move of 10.2%. 


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