Copart Inc. Earnings Analysis

| About: Copart, Inc. (CPRT)

Copart Inc. (NASDAQ:CPRT) reports preliminary financial results for the year ended 07-31-2012.

Copart Inc. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

Copart Inc.'s analysis versus peers uses the following peer-set: CarMax Inc. (NYSE:KMX), AutoNation Inc. (NYSE:AN), Penske Automotive Group Inc. (NYSE:PAG), Group 1 Automotive Inc. (NYSE:GPI), Sonic Automotive Inc. Cl A (NYSE:SAH) and America's Car-Mart Inc. (NASDAQ:CRMT). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Annual (USD million) 2012-07-31 2011-07-31 2010-07-31 2009-07-31 2008-07-31
Revenues 924.2 872.2 772.9 743.1 784.8
Revenue Growth % 6.0 12.9 4.0 (5.3) 40.0
Net Income 182.1 166.4 151.6 139.5 156.9
Net Income Growth % 9.5 9.7 8.7 (11.1) 15.1
Net Margin % 19.7 19.1 19.6 18.8 20.0
ROE % 32.6 20.3 15.1 16.2 18.7
ROA % 16.3 14.4 13.3 13.9 16.0

Valuation Drivers

Copart Inc. currently trades at a higher Price/Book ratio (6.2) than its peer median (4.2). Copart Inc. achieved a better operating performance than the median of its chosen peers (ROE of 32.6% compared with the peer median ROE of 16.2%) and the market still expects faster growth from it than from those peers (PE of 19.8 compared with peer median of 15.6).

The company's relatively high profit margins (currently 19.7% vs. peer median of 2.0%) are burdened by asset inefficiency with asset turns of 0.8x compared with the peer median of 2.4x. Overall, this suggests a margin-driven operating model relative to its peers. Copart Inc.'s net margin is less than (but within one standard deviation of) its five-year average net margin of 20.4%.

Economic Moat

Changes in the company's annual top line and earnings (6.0% and 9.5% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

Copart Inc.'s return on assets is above its peer median both in the current period (16.3% vs. peer median 4.7%) and also over the past five years (14.8% vs. peer median 1.8%). This performance suggests that the company's relatively high operating returns are sustainable.

The company's comparatively healthy gross margin of 47.9% versus peer median of 15.5% suggests that it has a differentiated strategy with pricing advantages. Further, Copart Inc.'s bottom-line operating performance is better than peer median (pre-tax margins of 30.1% compared with peer median 3.2%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While Copart Inc.'s revenue growth has been around the peer median in recent years (7.5% vs. 7.5% respectively for the past three years), the market gives its shares a higher than peer median PE ratio of 19.8. The market seems to see faster growth ahead.

Copart Inc.'s annualized rate of change in capital of 2.9% over the past three years is around the same as its peer median of 2.9%. This investment has generated a better-than-peer median return on capital of 16.8% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.

Earnings Quality

Copart Inc. has reported relatively strong net income margin for the last twelve months (19.7% vs. peer median of 2.0%). This margin performance combined with relatively high accruals (5.1% vs. peer median of -1.8%) suggests possible conservative accounting and an understatement of its reported net income.

Copart Inc.'s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median -- which suggests a relatively strong buildup in reserves compared with its peers.

Trend Charts

Company Profile

Copart, Inc. provides online auctions and vehicle remarketing services in the U.S., Canada and the United Kingdom. The company provides vehicle sellers with a full range of services to process and sell vehicles over the Internet through its Virtual Bidding Second Generation Internet auction-style sales technology, which is referred to as VB2. It sells products principally to licensed vehicle dismantlers, rebuilders, repair licensees and used vehicle dealers and exporters. The company was founded in 1982 and its headquarters is in Fairfield, CA.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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