Copart, Inc. (NASDAQ:CPRT)

I first placed Cprt on my CAPs on 06/17/09 at $34.41. It still lags the S&P500. I think that will change in the next five years.

I believe Copart can grow slowly over many years and outpace the S&P500.

The price is $47.00 and the PE ratio is 20.09 which is a premium to a growth rate of about 14.57%. But I think there should be a premium for consistency. Copart has grown net income at a rate over the last 10 years of 14.57%. If we use earnings per share, the growth rate jumps to 15.58%. If we look at them over the last 10 years, the PE of 20.09 doesn’t look so bad.

But what about the last five years?

Then it starts to look a little worse. The return based on net income was 11.41% compounded annually. However, we need to remember that five years ago we were in a raging bull market, more people were on the road, gas prices were much cheaper and there were more accidents. I don’t mind trading a bit of net income for safer roads. Hehehe

And then we suffered through the deepest recession since the Great Depression. Even so, Copart hasn’t done very badly. Even at the worse of things, Copart stock price dropped to only $22.54 and a PE ratio of 12.59. Today based on a $47 stock price the PE ratio s 20.09 and the stock price would have to fall to $29.46 for them to match the low PE ratio of the Great recession. What would happen if we went back into a raging bull market?

In the last five years, earnings per share growth have been 15.85% per year or about par with the ten year average. They have accomplished this by buying back a huge number of shares. They borrowed money to buy back shares. Over the last year and one quarter, they repurchased about 20 million shares of their common stock at prices that average below $40. Today the price is $47 which means value was created for shareholders.

They did pick up $500 million in debt, but 75% of that debt is at 2.34% interest. I think the trade off was a good one. That wouldn’t be true if they couldn’t afford to pay back the loan at some point. But Copart makes far more cash than they can spend on capital expenditures. In the last 12 months they generated $149.1 million in cash flow. Combined with the $212 million in cash, they could buy back that debt in about 2 years. That is a pretty comfortable debt load. For the entire fiscal year, they only spent about $4 million in interest expense – the stock bought at $40 is not $47 which represents a profit of about $140 million if they were to sell it on the open market today. I am Ok with this.

Of course, value is destroyed if the price of the stock were to go under $39 and remain there. Analysts believe they will make $2.65 and $2.94 for fiscal 2012 and 2013. So I believe the downside is protected by growing earnings and also the fact, they aren’t very volatile. They dropped much less than other companies during the Great Depression.
But safely alone certainly isn’t a good reason to buy the stock. Not losing money isn’t the same as making money, but I believe Copart will continue to grow over the next ten years, so I continue to hold my shares.

Notes on latest quarter 1Q:2012

Revenues were $225.626 million for the quarter up 6.1% from $212.667 million. They changed the way they recognize revenues, if that change had not took place revenues would have grown 9.8%. TTM revenues were $885.206 million or $13.23 per share up from $800.085 million or $9.48 per share. TTM revenues per share grew 39.6%.

Same store sales were up 3.4%. Excluding changes in how revenues are recognized, same store sales would have grown 7%.

Total volume increased 4%. Purchased car revenue as a percentage of sales grew from 15.6% to 17.7%. Purchased car volume was down to 5.3% of total volume from 5.8% last year. Volume, thus large sales per transaction is supposed to decline as they continue to transition from principal model to agency model.

Net income was $41.149 million up 8.8% from $37.823 million. Earnings per share were $0.62 up from $0.45. TTM earnings were $2.34 up 29.3% from $1.81 per share.

Cash flow for the quarter was $57.1 million down from $66.5 million. TTM cash flow was $149.1 million or $2.23 per share up from $137.7 million or $1.63 per share. Capital expenditures for the quarter were $7.274 million down from $14.777 million last year.

In fiscal 2011, the Company repurchased 18.8 million shares for about $39 per share. The Company repurchased 1.0699 million shares during the quarter for an average price of about $40.73. They have reduced the number of shares outstanding to 66.901 million from 84.406 million last year. This is a huge reduction of shares. Did it affect their cash balance?

They presently have $212.677 million in cash and debt of $501 million or net debt of $288.323 million. Last year, they had $260 million cash and zero debt for net cash of $260 million. The balance sheet deteriorated by about $548 million, but they purchased about $700 million worth of shares. I don’t want them to continue to borrow money to repurchase shares. They can easily repurchase $70 million worth of shares per year and pay down debt or expand their business. About 75% of their outstanding debt has an interest rate of about 2.34%.

Stock based compensation for the year was $19.007 million up from $17.955 million last year. In 2009, stock based compensation was only $9.413 million. Stock based compensation for fiscal 2011 was 11.4% of net income and 2.2% of sales. In the first quarter of 2012, stock based compensation expense was $5.045 million (12.2% of net income) up from $4.636 million (12.23% of net income).

The Company has 154 facilities in North America and the UK. They have $595 million in property and equipment net of depreciation or about $8.90 per share

ThompsonFn estimates: December 19, 2011
2Q:2012 $0.59
3Q:2012 $0.80
Fiscal 2012 $2.65
Fiscal 2013 $2.94

People have less money to spend, but still need cars. Although people can't get new cars here, it's a nice alternative to go for parts.