Copart (CPRT) Gains From Auction Locations Despite High Costs

On Dec 31, we issued an updated research report on Copart, Inc. CPRT.

The Dallas, TX-based provider of online vehicle auctioning platform is adding auction locations, both organically and inorganically, to improve its network of facilities and drive sales. From the beginning of 2018 till Oct 31, the company opened 6 locations across Europe and the United States apart from acquiring companies with existing locations. Sufficient auction locations aid Copart to add more cars in inventories and sell those at auctions, thus, driving the company’s revenues.

Further, the company sees good growth opportunities in the European market, majorly across Germany and Western Europe. This impelled Copart to invest and add or open locations on this continent. In first-quarter fiscal 2019, it added six locations in Germany. During the same time frame, the company had fifteen locations in the United Kingdom. These locations are expected to aid the company’s growth in Europe’s competitive marketplace as well as drive its top line.

Copart, Inc. Price and Consensus

In the first quarter of fiscal 2019, Copart’s earnings and revenues surpassed their respective Zacks Consensus Estimate. The company’s global unit sales rose 4.1% year over year, with the United States contributing a positive 2.4% and international unit contributing 14.3%. Internationally, growth was driven by the United Kingdom and Germany.

However, too much presence in international markets makes the company vulnerable to foreign currency fluctuations and country-specific policy threats. During the first quarter, Copart’s year-over-year revenue growth was partly offset by the strength of the U.S. dollar in comparison with the pound and Brazilian real.

The company’s general and administrative expenses witnessed 13.1% year-over-year rise to $44.5 million. Out of the total amount, growth initiatives in the United States cost $37.3 million while internationally, Europe’s business expansion cost $1.5 million. Additionally, over the past year, three hurricanes have increased average cost per vehicle for Copart. Continuous rise in expenses might hamper the company’s profit margin.

In the past 30 days, the Zacks Consensus Estimate for Copart’s earnings in fiscal 2019 has edged down 0.5%. Further, over the past three months, shares of the company have lost 9.4% compared with the industry’s decline of 11%.

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Some better-ranked stocks in the auto space are Fox Factory Holding Corporation FOXF, CarGurus, Inc. CARG, and Cooper Tire & Rubber Company CTB, each carrying a Zacks Rank #2 (Buy).

Fox Factory has an expected long-term growth rate of 5%. Share price of the company has increased 20.1% in the past six months.

CarGurus has an expected long-term growth rate of 5%. Shares of the company have gained 13% in the past year.

Cooper Tire has an expected long-term growth rate of 4%. Over the past six months, shares of the company have gained 22.2%.

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