Wall Street Betting on Upside for KMX Stock with Earnings Near

An earnings beat could prompt short-covering tailwinds for KMX

CarMax, Inc (NYSE:KMX) is scheduled to report earnings before the open this Friday, June 21, and the stock just received a bullish analyst note ahead of the event. Credit Suisse upped its price target to $90 from $84, which follows another price-target hike to $100 at Oppenheimer on Friday. There's also been plenty of buzz in KMX's options pits, as well.

During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the 10-day call/put volume ratio was 1.61, which ranks near the top quartile of its annual range -- hinting at a strong demand for call buying. These traders may be betting on another strong earnings move from the shares like last quarter.

Options volume has ramped up today, as well, and the July 82.50 call is most popular, though both call and put volume are running well above the expected pace. Overall, speculators are pricing in a 9.3% post-earnings move from CarMax stock, compared to its post-earnings average of just 5.6% over the past two years.

Meanwhile, short interest has been on the rise, shooting up almost 31% in the last reporting period. This puts 12.8% of the float in short sellers' hands, which equates to more than 12 times the average daily trading volume. But with KMX rallying to a record high of $84.99 today and its year-to-date lead at 33.5%, many short sellers could be facing losing positions. In fact, the equity just landed on a list of names that could potentially see a short-squeeze situation, based on data from Schaeffer's Senior Quantitative Analyst Rocky White.