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.

It's not all bad though, investors have been rewarded with an increase of year-over-year revenue. Revenue reported was $7 billion last fiscal year compared to $5.81 billion in the previous year. The bottom line has falling earnings year-over-year with a loss of $73.92 million last fiscal year compared to $36.67 million in the previous year. (Read my article about Amazon and its lofty valuation.)

Industry and Peers Comparison:

Rite Aid Corporation (RAD)

Who They Are: Rite Aid is a retail drugstore chain in the United States serving customers in numerous states across the country and trades an average of 8.4 million shares per day with a marketcap of $1.1 billion.

Rite Aid is anticipated to report a somewhat smaller first-quarter earnings loss before the market opens on June 21. The consensus estimate is currently a loss of 3 cents a share, an improvement of 3 cents from a loss of 6 cents during the same period last year.

Rite Aid mean fiscal year loss estimate is 20 cents per share this year. Short interest reflects pessimism in the shares as well: 6.64% of the float is currently short. That isn't really enough to cause much of a short squeeze, but it does demonstrate a lot of smart money is positioning for a falling share price.

Revenue growth relative to last year appears to be problematic for management. Comparing year-over-year fiscal years, revenue has declined to $25.21 billion last fiscal year compared to $25.67 billion in the previous year. The bottom line losses increased year-over-year of $555.42 million last fiscal year compared to $506.67 million in the previous year.

The shares are near the starting point of 2012 (like a lot of companies), but what should be a concern is the $1 price point. Shares need to stay above $1 to keep the NYSE exchange listing (although it takes a long time to become delisted). The flip side to this is $1 becomes a natural buying point because the company/large investors will want to support the share price from falling below.

Industry and Peers Comparison:

After the Close

Bed Bath & Beyond Inc. (BBBY)

Who They Are: Bed Bath & Beyond is a nationwide operator of superstores selling predominantly better-quality domestics merchandise. It trades an average of 2.4 million shares per day with a marketcap of $16.6 Billion.

BBBY is anticipated to report fantastic first quarter earnings after the market closes on June 20. The consensus estimate is currently 84 cents a share, an improvement of 12 cents, or 14.3%, from 72 cents during the same period last year.

The trailing 12-month price-to-earnings ratio is 17.5, the mean fiscal year estimate price-to-earnings ratio is 15.11, based on earnings of $4.62 per share this year.

For the same fiscal period year-over-year, revenue has improved to $8.76 billion last fiscal year compared to $7.83 billion in the previous year. The bottom line has rising earnings year-over-year of $791.33 million last fiscal year compared to $600.03 million in the previous year.

BBBY stock has gone up, up, and away in a perfect trend-following angle, and the price-to-earnings ratio is low enough to support continued price appreciation. I expect the average analyst price target will get raised as long as BBBY doesn't drop the ball during earnings.

Industry and Peers Comparison:

Author does not hold a position in any stock mentioned.

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