CPRT Stock Study (1-24-23)

I recently did a stock study on Copart, Inc. (CPRT) with a closing price of $64.86.

CFRA writes:

     > Founded in 1982 and headquartered in Dallas, CPRT is a global
     > global leader in online vehicle auctions. Copart’s online
     > auction platform links sellers to more than 750,000 members
     > in over 170 countries. The company offers services to process
     > and sell salvage and clean title vehicles to dealers,
     > dismantlers, rebuilders, exporters, and in some cases,
     > individuals. Copart sells vehicles on behalf of insurance
     > companies, banks, finance companies, charities, fleet operators
     > and dealers, and individual owners.

This medium-sized company has grown sales and earnings at annualized rates of 14% and 25.7%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel. Over the last 10 years, PTPM has trended higher from 26.5% to 38.3% with a 5-year average of 36.4%. This far outpaces peer (stated as CRMT, ABG, and LAZY) and industry averages.

ROE has been up and down over the last 10 years with a 5-year average of 29.2%—slightly higher than peer and industry averages. Debt-to-Capital has decreased from 33.8% to 2.5% over the last 10 years with a last-5-year average of 14.2%. This is much lower than peer and industry averages. Current and Quick Ratios are over 4 while Interest Coverage over the last five years is an impressive 48.

I assume long-term annualized sales growth of 4% based on the following:

• CNN Business (FactSet) projects 8.6% YOY and 6.9% per year for ’23 and ’22-’24, respectively, based on eight analysts.
• YF projects 7.8% and 7.3% YOY for ’23 and ’24, respectively (eight analysts).
• Zacks projects YOY 7.1% and 7% for ’23 and ’24, respectively (4).
• Value Line projects 6.5% annualized from ’20-’22 through ’25-’27, but only 2.7% annualized from ’22-’26 (base effects; earnings grew about 20% YOY in ’22).
• M* offers a 2-year ACE of 7% per year.
• CFRA projects 7.9% YOY and 7.2% per year for ’23 and ’22-’24, respectively.

I assume long-term annualized EPS growth of 4% based on the following:

• CNN Business (FactSet) reports ACE 3.6% YOY and 6.7% per year for ’23 and ’22-’24, respectively, based on eight analysts.
• MarketWatch (FactSet) projects 6.7% and 13.1% per year from ’22-’24 and ’22-’25, respectively (10 analysts).
• Nasdaq.com (Zacks) projects 7.6% YOY and 6.1% per year for ’24 and ’23-’25, respectively (5, 5, and 2 analysts for ’23, ’24, and ’25).
• YF projects 3.6% and 10.4% YOY for ’23 and ’24, respectively, and 22.3% per year for the next five years (9).
• Zacks projects 0.5% and 7.6% YOY for ’23 and ’24, respectively (5).
• Value Line projects 2.9% per year from ’22-’26.
• CFRA projects 3.1% YOY and 6.9% per year for ’23 and ’22-’24, respectively, along with a 3-year annualized projection of 11%.

I’m using Forecast High P/E of 30. High P/E over the last 10 years has ranged from 19.4 (’17) – 37.9 (’21). The last five years have trended higher with an average of 35.3.

I’m using Forecast Low P/E of 17. Low P/E over the last 10 years has ranged from 14.6 (’16) – 23.9 (’21). The last five years have averaged 20.2.

I’m using a Low Stock Price Forecast of $46.60. The default low price is $37.90, which is 41% below the previous closing price. I selected the 2021 low price, which is about 28% below the previous closing price.

All this results in an U/D ratio of 0.9, which makes CPRT a Hold. Total Annualized Return is 4.7%.

PAR (based on Forecast Average, rather than High P/E) is -0.3%, which echoes Value Line’s statement that “shares… have unappealing long-term appreciation potential, at the current quotation.”

I did not feel particularly conservative with this study, which might mean even -0.3% per year is too optimistic. To better assess this, I look to Member Sentiment. Based on 187 studies in last 90 days, averages for projected sales growth, EPS growth, High P/E, and Low P/E are 8.8%, 10.5%, 31, and 19.2, respectively. I’m actually lower on all inputs. As one additional reference point, Value Line projects an average annual P/E of 27 compared to my 23.5.

My study therefore does appear to be rather conservative. Unfortunately at this time CPRT is far too overpriced to get the sort of annualized return I would hope to realize from a medium-sized company. I will wait to reassess at the upper end of the Buy zone: $55/share.