Earnings Previews: CarMax, Micron, Paychex

At Tuesday’s opening bell, stocks were trading lower. In the first quarter hour of trading, the Nasdaq traded down by around 0.8%, the S&P 500 was down by 0.6% and the Dow Jones industrials had retreated about 0.3%. The European Commission accepted promises from Amazon that the e-commerce giant would not use marketplace seller data that the EC claimed distorted fair competition. The company also agreed to change the way it ranks offers in the Buy Box and make additional changes to eliminate EC concerns with Amazon Prime. Amazon shares traded down about 0.4% in the early going Tuesday.
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After markets closed Monday, Heico, a parts supplier to the aerospace and defense industries, reported record revenues that beat estimates and adjusted earnings per share (EPS) that came in slightly above estimates. The company also raised its annual dividend by two cents to $0.20 per share. The stock was up about 0.2% after 15 minutes of the regular session.

Before markets opened on Tuesday, General Mills reported quarterly results that beat EPS and revenue estimates. The company raised fiscal 2023 guidance for adjusted operating profit from a range of 6% to 7% to a new range of 8% to 9% and adjusted EPS from a prior range of 2% to 5% to a new range of 4% to 6%. The less-good news about raising prices to cope with inflation wiped out the good news. Shares traded down about 4.9%.
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FuelCell Energy missed the consensus EPS and revenue estimates. Shares traded down about 9.2% early Tuesday.

BlackBerry, FedEx and Nike will report results after U.S. markets close on Tuesday, while Carnival and Rite Aid are due to share their results first thing Wednesday morning.

Here is a preview of two companies set to report results late on Wednesday or early Thursday. These are the last reports due out ahead of the holiday weekend.
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CarMax

Shares of used car retailer CarMax Inc. (NYSE: KMX | KMX Price Prediction) have dropped nearly 58% of their value over the course of the past 12 months. The used car dealership sells, services, and finances purchases at some 220 stores around the United States. The company is set to post quarterly results before markets open on Thursday.
Earlier this month, the company reached a $1 million settlement with 36 state attorneys general investigating CarMax for selling used vehicles with open recalls even though the company made claims that it was selling safe vehicles. The worse news is that demand for used vehicles has dropped, forcing dealers to lower prices in order to move inventory. Another overhand is the decrease in auto leasing, leading to fewer vehicles available for the used car pool.
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Of 19 analysts covering CarMax stock, 10 have a Buy or Strong Buy rating and another seven have Hold ratings. At a recent price of around $58.10 a share, the upside potential based on a median price target of $72.00 is 23.9%. At the high price target of $155.00, the upside potential is 167%.

Third-quarter revenue is forecast at $7.28 billion, which would be down 10.6% sequentially and 14.7% lower year over year. Adjusted EPS are expected to come in at $0.70, down 11.5% sequentially and by 54.2% year over year. For the full 2023 fiscal year ending in February, CarMax is expected to report EPS of $3.88, down 43.5%, on sales of $31.72 billion, down 0.6%.

CarMax stock trades at 15.0 times expected 2023 EPS, 13.5 times estimated 2024 earnings of $4.29 and 9.8 times estimated 2025 earnings of $5.90 per share. CarMax’s 52-week trading range is $54.85 to $139.80. CarMax does not pay a dividend, and total shareholder return over the past 12 months is negative 57.7%.
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Micron

Shares of semiconductor maker Micron Technology Inc. (NASDAQ: MU) have lost nearly 38% over the past 12 months. Since reaching a 52-week high in early January, the stock has dropped by nearly 45%. Semiconductor stocks have dropped by a third over the past year and by about 36% in 2022. Micron reports earnings after markets close Wednesday.

In a recent visit to Malaysia, CEO Sanjay Mehrotra said that Micron’s customers are reducing inventories as demand for smartphones and PCs has weakened. The company has cut its own supply growth for the next few years and will be lowering its capital spending as well. Mehrotra emphasized that these are near-term issues that he expects things to improve over the “next few quarters.”

Of 37 analysts covering the stock, 27 have a Buy or Strong Buy rating and another eight rate the shares at Hold. At a price of around $51.70 a share, the upside potential based on a median price target of $67.00 is about 29.6%. At the high target of $100.00, the upside potential is 93.4%.
First-quarter fiscal 2023 revenue is forecast at $4.14 billion, down 37.6% sequentially and by 46.2% year over year. Analysts expect an adjusted loss per share of $0.02, down from EPS of $1.45 in the prior quarter and $2.16 in the first fiscal quarter of 2022. For the full fiscal year ending in August, revenue is forecast at $17.82 billion, down 42.1%, and the full-year loss is forecast at $0.49, compared to last year’s EPS of $8.35.
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Micron stock trades at 16.1 times estimated 2024 EPS of $3.22 and 11.9 times estimated 2025 earnings of $4.36 per share. The stock’s 52-week range is $48.45 to $98.45, and Micron pays an annual dividend of $0.46 (yield of 0.88%). Total return over the past 12 months was negative 37.3%.
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Paychex

Paychex Inc. (NASDAQ: PAYX) is the country’s second-largest integrated human resources outsourcer of staffing and employment services such as payroll and insurance. The stock has dropped about 6.8% from its share price over the past 12 months but has tumbled by 16% since posting a recent high in mid-August.

Paychex has only missed EPS estimates once since the October 2018 quarter and missed sales estimates only twice during the same period. Results during the pandemic lockdowns exceeded estimates in every quarter. Employment continues to grow, and that is good for the company. Less good would be more worries over a recession caused by Federal Reserve overtightening, and that seems to be the prevailing concern for equities (not just Paychex) these days.

Of 19 analysts covering the stock, 14 have a Hold rating and three rate the shares at Buy or Strong Buy. At a price of around $115.50 a share, the upside potential based on a median price target of $125.50 is 8.7%. The high price target of $140.00 implies an upside of about 21.2% to the current price.
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Analysts expect revenue for the second quarter of fiscal 2023 to come in at $1.18 billion, down 2.5% sequentially but up 6.3% year over year. Adjusted EPS are expected to be $0.96, down 6.7% sequentially but 5.5% higher year over year. For the full fiscal year ending in May, analysts forecast EPS of $4.18, up 10.8%, and revenue of $4.97 billion, up 7.8%.

Paychex stock trades at 27.6 times expected 2023 EPS, 25.9 times estimated 2024 earnings of $4.46 and 23.9 times estimated 2025 earnings of $4.84 per share. The stock’s 52-week range is $105.66 to $141.92. Paychex pays an annual dividend of $3.16 (yield of 2.73%). Total shareholder return for the past 12 months was negative 4.4%.