Copart Inc

CPRT Details

Copart Inc (NASDAQ: CPRT) is a global leader in online vehicle auctions. It provides services to process and sell used, wholesale as well as repairable vehicles to dealers, dismantlers, rebuilders, exporters, and in some jurisdictions, to the general public.

Results Performance (For the Period Ended 30 April 2021)

Healthy Revenue Growth of 15.7% YoY in 9MFY21: The company has posted a healthy revenue growth of 15.7% YoY in 9MFY21 to $1.9 billion. In Q3FY21, it registered a strong revenue growth of 33.4% YoY to $733.9 million.

Higher Profitability: In line with robust growth in revenue, the company recorded a solid growth in both gross profit, and net income in Q3FY21, up by 57.2% YoY and 94.5% YoY to $381.3 million, and $286.8 million, respectively. While, in 9MFY21, gross profit, and net income increased by 30.1% YoY and 27.3% YoY to $985.6 million, and $680.5 million, respectively.

Key Data (Source: Company Reports)

Recent Update

• Addition of New Locations: The company, on 16 July 2021, announced the opening of a new location in Bismarck, North Dakota. Earlier, it had, on 13 May 2021, announced an opening of a new location in Bruchmühlbach-Miesau near Mannheim in Germany.

• Appointment: CPRT, on 26 May 2021, declared the induction of Cherylyn Harley LeBon to its Board of Directors. She has a legal and business expertise, along with rich experience in senior executive roles within the United States federal government.
  

Outlook

The company is seeking growth opportunities through both organic as well as inorganic route. CPRT continues to focus on increasing revenues and profitability through acquiring and developing additional vehicle storage facilities in key markets along with pursuing global, national, and regional vehicle seller agreements, enhancing its service offerings, and augmenting the usage of VB3 into new markets.

Apart from this, the company is also pursuing growth through business acquisitions. According to its stated strategy of offering integrated services to vehicle sellers, it anticipates acquiring and developing facilities in new regions, as well as in the regions being catered by its facilities presently that will further bolster its footprint. Besides, the company is implementing its pricing structure and auction procedures and making efforts to bring costs efficiencies at each of its facilities, thereby, ensuring enhanced profitability.

Key Risks

The company is exposed to risk of disruptions due to the global COVID-19 pandemic that would have an adverse impact on its near-term revenues owing to lower auction inventories. Further, majority of its revenue generation is reliant on a limited number of major vehicle sellers i.e., client concentration risk. The loss of one or more of these major sellers could adversely affect its financial position and growth rate. Additionally, it is exposed to risk pertaining to the changes in the U.S. dollar exchange rate to foreign currencies.

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Stock Recommendation

We have valued the stock using a Price/EPS multiple-based illustrative relative valuation and have arrived at a target price that reflects a fall of low double-digit (in % terms). We have assigned a slight discount to Price/EPS Multiple (NTM) (Peer Average), considering the Covid-19 led uncertainties and the associated business risks.

For the purposes of relative valuation, we have taken peers like KAR Auction Services Inc (KAR.N), IAA Inc (IAA.N), to name a few.

Considering the aforementioned factors, we advise the market players to liquidate the stock.

Hence, we give a “Sell” rating on the stock at the current market price of $148.33 per share, up by 0.09% on 4^th August 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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