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KAR Auction Services (NYSE:KAR) Q3 Earnings: What Can You Expect?

in EARNINGS/INVESTING IDEAS by

KAR Auction Services, Inc. (NYSE:KAR) is scheduled to report Q3 earnings results after markets close for trading on November 3, 2020.

The company is expected to report earnings of $0.28/share on revenue of $634 million. The consensus earnings per share (EPS) of $0.28/share is based on a poll of 9 analysts and represents a decline in eps of −20.6% over the same quarter last year, when the company reported earnings of $0.35/share.

The revenue forecast of $634 million based on a poll of 9 analysts implies a year-over-year (YoY) decline in revenue of −9.7%. Last year the company reported $701.9 million in revenue for the quarter.

Expected to report EPS contraction of −20.6% for Q3, 2020
Metric Expected Prior Year YoY Change
Revenue $634.05 $701.90 −9.7%
EPS $0.28 $0.35 −20.6%

Earnings Call Trends

Historically, management has exceeded analyst expectations 2 out of the last 8 tracked quarters, missed 5 quarters, and met expectations 1 quarter.

What are your expectations from KAR Auction Services, Inc. for earnings this quarter? Let us know in the comments!

Analyst Expected vs. Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2020 -$0.11 $0.08 173.8% Beat
Q1, 2020 $0.14 $0.09 −37.2% Missed
Q4, 2019 $0.29 $0.19 −33.6% Missed
Q3, 2019 $0.40 $0.35 −12.3% Missed
Q2, 2019 $0.37 $0.30 −18.9% Missed
Q1, 2019 $0.77 $0.70 −9.6% Missed
Q4, 2018 $0.59 $0.62 4.9% Beat
Q3, 2018 $0.70 $0.70 0% Met

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending June 30, 2020, the stock price reacted by increasing 9.8%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
August 4, 2020 $15.16 $16.65 9.8% Increase
May 7, 2020 $13.86 $13.16 −5.1% Decline
February 18, 2020 $22.47 $23.25 3.5% Increase
November 5, 2019 $24.60 $21.03 −14.5% Decline

The other question to consider is one of earnings manipulation. There is a lot of pressure on management each quarter to deliver on earnings expectations. The Beneish M-Score is a statistical model that provides some insight into whether the company might be manipulating earnings. With a Beneish M-Score of −2.95, the model suggests that the company is not likely to be an earnings manipulator. A value of −2.95 implies a 0.2% chance of earnings manipulation.

Fundamentals And Technical Analysis

KAR Auction Services, Inc. is currently trading at $13.80/share, down −3.9% for the day. The company is trading at approximately 52.0% of its 52-week high of $26.63/share. The company’s stock price is down −17.1% since the last earnings report and down −7.8% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 37.23 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.


NYSE:KAR Stock Price Chart
Source: Finbox

The current share price implies a price-to-earnings (P/E) multiple of 97.96 and a forward P/E multiple of 20.09.

KAR Auction Services, Inc.’s current share price also implies a price-to-book (P/B) multiple of 1.14. The following table summarizes some other key fundamental ratios:

Data as of October 28, 2020
Metric Value
Last Reported Fiscal Period Key FY2020.Q2
Period End Date June 30, 2020
Stock Price (Current) $13.80
P/E Ratio 98.0x
P/E Ratio (Fwd) 20.1x
PEG Ratio −1.1
Total Debt / Total Capital 55.7%
Levered Free Cash Flow $363.5 million
EV / EBITDA 10.7x

Finbox

KAR Auction Services, Inc. is a small-cap stock with a market capitalization of $1.856 billion and a total enterprise value of $4.412 billion. The company operates in the Industrials sector and the Commercial Services & Supplies industry.

KAR Auction Services, Inc., together with its subsidiaries, used vehicle auctions and related vehicle remarketing services for the automotive industry in the United States, Europe, Canada, Mexico, and the United Kingdom. The company operates through two segments, ADESA Auctions and AFC. The ADESA Auctions segment offers whole car auctions and related services to the vehicle remarketing industry through online auctions and auction facilities. It also provides value-added services, such as auction related, transportation, reconditioning, inspection, title and repossession administration and remarketing, vehicle research, and analytical services, as well as data as a service. This segment sells its products and services through vehicle manufacturers, fleet companies, rental car companies, finance companies, and others. As of December 31, 2019, this segment had a network of 74 whole car auction facilities in North America. The AFC segment offers floorplan financing, a short-term inventory-secured financing to independent used vehicle dealers; and sells vehicle service contracts. It also provides wheel repair and hail catastrophe response services. The company serves vehicle manufacturers, vehicle rental companies, financial institutions, commercial fleets and fleet management companies, and dealer customers. The company was formerly known as KAR Holdings, Inc. and changed its name to KAR Auction Services, Inc. in November 2009. KAR Auction Services, Inc. was founded in 2006 and is headquartered in Carmel, Indiana.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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