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On February 16, 2022, Copart (CPRT) released Q2 and YTD2022 results. WOW! Copart continues to impress!
In my January 8, 2022 post, I disclose a new CPRT position in an account for a young investor I am helping create a portfolio to achieve financial freedom. I also indicate my intent to establish a CPRT position in the FFJ Portfolio and in other accounts for which I do not disclose details.
After the January 8 post, I made the following purchases:
- January 10: purchased shares in an account for which I do not disclose details;
- January 18: purchased 200 shares @ ~$133.77 in a Core account in the FFJ Portfolio; and
- February 17: purchased 50 shares @ ~$125.26 in the same Core account.
Overview
CPRT and its clients are facing larger repair costs and repair cycle times. In addition, parts delays and rentals timeframes are longer and at higher rates than ever previously observed.
On the Q2 earnings call, management indicated that the secular trends discussed in prior earnings calls are ongoing. As vehicle complexity increases and vehicle composition becomes less repairable, materials like composites and aluminum result in higher repair costs. Given this trend, CPRT's auction liquidity and international member base make it increasingly efficient for insurance companies to 'total' a vehicle as opposed to having vehicles repaired.
CPRT's US non-insurance business grew on a unit basis by 4.5%, driven in part by growth in the "Copart Direct' business and consignments from rental fleets and financial institutions. Growth across CPRT's various non-insurance channels is believed to be a reflection of:
- market share capture;
- auction liquidity and returns; and
- the company's proactive selling efforts.
By earning the right to sell on behalf of insurance companies through the company's online auction platform, CPRT becomes increasingly able to achieve superior returns for progressively more non-insurance cars. The volume from dealers, rental car companies, banks and consumers further contributes to CPRT's auction liquidity which, in turn, benefits CPRT's insurance clients.
Please refer to my January 8 post for further details.
Financials
Q2 and YTD2022 Results
CPRT's Q2 2022 Form 8-K can be accessed here.
Strong results observed in Q2 were largely a continuation of what CPRT experienced in Q1 with volumes continuing to recover and the average selling prices remaining elevated.
CPRT's financial statements at the end of FY2021, Q1 and Q2 2022 reflect the following:
- FYE2021: CPRT's cash, cash equivalents, and restricted cash amount to ~$1.048 and its TOTAL liabilities are ~$1.033B. CPRT could wipe out 100% of its liabilities and still have $0.015B of cash, cash equivalents, and restricted cash.
- Q1 2022: CPRT's cash, cash equivalents, and restricted cash amount to ~$1.3B and its TOTAL liabilities are ~$1.125B. CPRT could wipe out 100% of its liabilities and still have $0.175B of cash, cash equivalents, and restricted cash.
- Q2 2022: CPRT's cash, cash equivalents, and restricted cash amount to ~$1.347B and its TOTAL liabilities are ~$1.047B. CPRT could wipe out 100% of its liabilities and still have $0.3B of cash, cash equivalents, and restricted cash.
Add to this the company's undrawn revolving credit facility with a capacity of over $1B and we have a company with ~$2.4B billion of liquidity; CPRT announced an increase in its credit facilities and certain lower fees in December 2021.
Look at these other metrics!
CPRT's YTD Net Income (in millions) in Q1 was ~$260 and ~$548 at the end of Q2. This is impressive when compared to FY2012 - FY2021 Net Income of $182, $180, $179, $220, $270, $394, $418, $592, $700, and $936.
Diluted EPS also impresses with FY2012 - FY2021 results of $0.70, $0.70, $0.68, $0.84, $1.11, $1.66, $1.73, $2.46, $2.93, and $3.90. By the end of Q2 2022, CPRT has generated $2.27.
CPRT's YTD Operating Margin is ~40.4%. This compares favourably with its FY2012 - FY2021 Operating Margin (in %) of 31.93, 27.04, 26.13, 30.05, 32.04, 33.2, 32.42, 35.09, 37.0, and 42.21.
CPRT's FY2012 - FY2021 Operating Cash Flow (in millions of $) is $230, $199, $263, $265, $332, $492, $535, $647, $918, and $991. In Q1, CPRT generated $313 and at the end of Q2 this had risen to $446.5.
Back out CAPEX (in millions of $) of $55, $130, $82, $79, $174, $172, $288, $374, $592, and $463 in FY2012 - FY2021 and we get FCF (in millions of $) of $175, $69, $181, $186, $159, $320, $247, $273, $326, $528. In the first half of FY2022, CAPEX amounts to $156.2. Subtract this CAPEX from YTD Operating Cash Flow of $446.5 and we end up with $290.3 in FCF.
How can an investor not be impressed!?
Credit Ratings
No rating agency rates CPRT since CPRT has no 'net debt'.
Dividend and Dividend Yield
CPRT does not distribute a dividend.
In FY2012 - FY2021, CPRT's weighted average number of outstanding shares (in millions of shares) was 263, 260, 262, 263, 244, 237, 242, 240, 239, and 240. The diluted weighted average common shares outstanding in the first half of FY2022 is ~241.
Valuation
CPRT's FY2012 - FY2021 PE ratios are: 20.49, 27.15, 25.34, 22.49, 17.26, 33.74, 25.41, 31.36, 44.65, and 36.53.
In my January 8 post, I indicate that in FY2019 - FY2021, CPRT generated $2.46, $2.93, and $3.90 in diluted net EPS. In Q1 2022, CPRT generated $1.08 of diluted net EPS versus $0.83 in Q1 2021. It generated $0.81, $1.19, and $1.06 in Q2 - Q4 2021.
I envisioned CPRT could reasonably generate $0.94/quarter in each of the next 3 quarters to earn the $3.90 it earned in FY2021. If, however, CPRT earned at least $1.00 in diluted net EPS in each of the remaining 3 quarters in FY2022, then diluted net EPS would be $4.08 for FY2022. At the time of that post, shares were trading at ~$136.50 thus giving us an estimated forward diluted PE of ~33.5.
Recently released results reflect $1.19 in Q2 diluted net EPS and YTD2022 diluted net EPS of $2.27; I thought CPRT would earn $2.08 in the first half of FY2022.
I do not think it is a stretch to expect CPRT to generate $1.12 in each of the remaining 2 quarters thus resulting in $4.51 of FY2022 diluted net EPS. Using the current ~$125.70 share price and $4.51, we get a forward diluted PE of ~28.
When I wrote my January 8 post, the two online trading platforms I use reflected the following adjusted diluted EPS estimates:
- FY2022 - 10 brokers - mean of $4.31 and low/high of $4.02 - $4.56. Using the current ~$136.50 share price and the mean estimate, the forward adjusted diluted PE is ~31.2.
- FY2023 - 10 brokers - mean of $4.62 and low/high of $4.23 - $5.00. Using the current ~$136.50 share price and the mean estimate, the forward adjusted diluted PE is ~29.5.
The online trading platforms have yet to be updated but I think brokers will be increasing their estimates after reviewing CPRT's YTD2022 results. For now, however, the following are the forward adjusted diluted PE levels using the ~$125.70 share price and the following adjusted diluted EPS estimates:
- FY2022 - 10 brokers - mean of $4.31 and low/high of $4.02 - $4.56. Using the current ~$125.70 share price and the mean estimate, the forward adjusted diluted PE is ~29.2.
- FY2023 - 10 brokers - mean of $4.62 and low/high of $4.23 - $5.00. Using the current ~$125.70 share price and the mean estimate, the forward adjusted diluted PE is ~27.2.
This is a more favourable valuation from when I previously acquired shares yet CPRT's results have improved.
Final Thoughts
CPRT's valuation is still a bit high. It does, however, have a dominant position in its industry, has no net debt and is growing quickly (FY2012 revenue: $0.924B versus YTD2022 revenue: $1.678B).
CPRT's consolidated results of operations have historically been subject to quarterly variations based on a variety of factors, of which the primary influence is the seasonal
change in weather patterns. During the winter months, there tends to be a higher demand for CPRT's services because there are more weather-related accidents. Severe weather events,
including but not limited to tornadoes, floods, hurricanes, and hailstorms, can also impact volumes.
The YTD2022 results are as of January 31, 2022, so CPRT's Q3 results should be strong since they include the months of February and March when poor winter weather conditions typically lead to more vehicle accidents.
In general, weather conditions are deteriorating with each passing year which leads to more severe weather events. The increasing frequency and severity of these events are favourable for CPRT. I, therefore, expect CPRT's results will continue to be impressive.
I wish you much success on your journey to financial freedom!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclosure: I am long CPRT.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
