CarMax: Big Call, but Peak Auto Fears Rule!

CarMax Inc. (NYSE: KMX) was given what should have sounded like a very positive analyst upgrade—a double-upgrade actually—on July 10 by Morgan Stanley. The firm raised its rating to Overweight from Underweight. Unfortunately for CarMax, this was more or less a standout in a cautious auto dealership call that really felt more like a “peak auto” call as it pointed to being deep into the auto cycle and that it would limit the potential for multiple re-rating for the dealer stocks.

CarMax shares did pay some attention later in the week with a rally on Friday to $77.37, but the stock was lower on the call itself and then again with the mid-week selling in the broader markets. With shares up 1% at $77.40 late on Friday, CarMax has a 52-week trading range of $57.05 to $81.67, and the consensus target price is just above $84, for what is arguably one of the best run dealerships in the country.

Cinemark and AMC: No, Movie Theaters Aren’t Dying

Cinemark Holdings Inc. (NYSE: AMC) and AMC Entertainment Holdings Inc. (NYSE: AMC) have had a hard time finding much love over the past 18 months or so. The two stocks were given solid upside calls but were more or less ignored as they were issued the day of the big sell-off (July 11). With a solid summer late of movies and hopes for a better post-summer movie lineup from the industry, this call implied upside of about 25% in the stock.

Cinemark was started with an Outperform rating and assigned a $46 price target at Imperial Capital. This compared with a prior $36.73 closing price, and the stock closed down almost 1% due to market selling pressure dominating that day. Imperial’s new rating on AMC Entertainment was Outperform, and the new $23 price target implied an even higher upside of 32% from the prior $17.35 close. AMC shares closed up only five cents on the day of the call, and the stock was down at $17.15 late on the following day, in a 52-week range of $10.80 to $23.60.

Petrobras: Another View Into Brazil

Petroleo Brasileiro S.A. (NYSE: PBR), or Petrobras, may have had some unlucky timing for a big upgrade that came out right into the July 11 selling pressure. Barclays gave Brazil’s state-run oil giant a double-upgrade to Overweight from Underweight, along with a $14 price target.

Petrobras had closed at $10.67 ahead of this call, but its shares closed at $10.35 due to selling pressure in the market and in many oil names. Many investors also worry that Brazil puts the state and the employee interests way ahead of the interest of the investors taking the risk. U.S.-listed Petrobras shares were back up at $10.59 late the day after the sell-off, but that was still disappointing considering a double-upgrade. Petrobras has a 52-week range of $8.17 to $17.20.