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Coming Week in Earnings: Let's Go Shopping


NEW YORK ( TheStreet) -- The next couple of weeks' earnings are expected to set the tone for the start of summer. Here, I review four of the biggest service sector companies reporting.

Remember that option premiums generally climb into earnings, so if you want to hedge as a buyer or seller act accordingly.

Before the Open

CarMax (KMX)

Who They Are: CarMax is a subsidiary of Circuit City Stores. It trades an average of 2.1 million shares per day with a marketcap of $6.3 billion.

CarMax is anticipated to report weaker first-quarter earnings before the market opens on June 21. The consensus estimate is currently 53 cents a share, a decline of 2 cents, or 3.6%, from 55 cents during the same period last year.

The trailing 12-month price-to-earnings ratio is 15.2 and the mean fiscal year estimate price-to-earnings ratio is 14.26, based on earnings of $1.93 per share this year. More than half of the analysts currently hold CarMax as a strong buy.

Revenue year-over-year has increased to $8.98 billion last fiscal year compared to $7.47 billion in the previous year. The bottom line has rising earnings year-over-year of $377.49 million last fiscal year compared to $277.84 million in the previous year.

Shares have really sold off recently, but not at a pace to look for a dead cat bounce. Calm steady sell-offs often precede gap downs in price and KMX would have me concerned about capital losses. The time to exit was actually in early May when the price broke below the 200-day moving average. Current shareholders can write covered calls into earnings to gain expanded option premiums and a hedge in case shares do not reach a bottom soon. The downside, of course, is covered call writers lose out on potential earnings if the stock jumps higher.

Industry and Peers Comparison:

Barnes & Noble, Inc. (BKS)

Who They Are: Barnes & Noble is engaged in the retail sale of books and trades an average of 1.4 million shares per day with a marketcap of $911 million.

Barnes & Noble is anticipated to report dismal, but advancing fourth-quarter earnings before the market opens June 19. The consensus estimate is currently a loss of 95 cents a share, an improvement of 9 cents (9.5%) from a loss of $1.04 during the same period last year. Analysts expect BKS to report a loss of 92 cents per share in the current fiscal year, ending April 2013.

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