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Copart Inc Valuation – Initial Coverage $CPRT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Copart Inc (CPRT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Copart, Inc. (Copart) is a provider of online auctions and vehicle remarketing services in the United States, Canada, the United Kingdom, the United Arab Emirates, Oman, Bahrain, Brazil, Ireland, Spain and India. The Company also provides vehicle remarketing services in Germany. The Company operates through two segments: United States and International. The Company provides vehicle sellers with a range of services to process and sell vehicles primarily over the Internet through its virtual bidding third generation Internet auction-style sales technology (VB3). The Company’s service offerings include Online Seller Access, Salvage Estimation Services, Estimating Services, End-Of-Life Vehicle Processing, Virtual Insured Exchange (VIX), Transportation Services, Vehicle Inspection Stations, On-Demand Reporting, Department of Motor Vehicle (DMV) Processing, Flexible Vehicle Processing Programs, Buy It Now, Member Network, Sales Process, Copart Dealer Services, CashForCars.com and U-Pull-It.

CPRT Chart

CPRT data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CPRT – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,559,483,783 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.76 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 140.08% Pass
6. Moderate PEmg Ratio PEmg < 20 28.76 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.39 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.76 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.98
MG Growth Estimate 9.27%
MG Value $53.57
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $28.72
MG Value based on 0% Growth $16.84
Market Implied Growth Rate 10.13%
Current Price $56.97
% of Intrinsic Value 106.35%

Copart, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.22 in 2013 to an estimated $1.98 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 10.13% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Copart, Inc. revealed the company was trading above its Graham Number of $19.31. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 28.76, which was above the industry average of 18.47. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.8.

Copart, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.80
Graham Number $19.31
PEmg 28.76
Current Ratio 1.76
PB Ratio 8.39
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2016
Total Current Assets $630,711,000
Total Current Liabilities $357,678,000
Long-Term Debt $0
Total Assets $1,770,396,000
Intangible Assets $265,334,000
Total Liabilities $962,989,000
Shares Outstanding (Diluted Average) 118,879,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.35
Jul2016 $2.21
Jul2015 $1.67
Jul2014 $1.36
Jul2013 $1.39
Jul2012 $1.39
Jul2011 $1.08
Jul2010 $0.89
Jul2009 $0.83
Jul2008 $0.88
Jul2007 $0.73
Jul2006 $0.52
Jul2005 $0.55
Jul2004 $0.44
Jul2003 $0.31
Jul2002 $0.32
Jul2001 $0.25
Jul2000 $0.18
Jul1999 $0.13
Jul1998 $0.09
Jul1997 $0.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.98
Jul2016 $1.73
Jul2015 $1.45
Jul2014 $1.31
Jul2013 $1.22
Jul2012 $1.10
Jul2011 $0.93
Jul2010 $0.83
Jul2009 $0.76
Jul2008 $0.69
Jul2007 $0.57
Jul2006 $0.47
Jul2005 $0.42
Jul2004 $0.34
Jul2003 $0.27
Jul2002 $0.23
Jul2001 $0.17

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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