Copart (CPRT) , a Zacks Rank #1 (Strong Buy), enjoys a dominant leadership position in the automotive auction market, commanding a roughly 40% market share. A set of bullish initiatives including new facility openings, elevated salvage auction volumes, and an industry-leading digital offering in Copart Max have helped the stock resume its long-term upward trajectory. CPRT stock hit an all-time high earlier this month as stocks have entered a new bull market. Shares continue to display relative strength as buying pressure accumulates in this market leader.
CPRT sports the second-highest Zacks Growth Style Score of ‘B’, indicating further upside is likely based on favorable earnings and sales growth metrics. The company is part of the Zacks Auction and Valuation Services industry group, which ranks in the top 1% out of more than 250 Zacks Ranked Industries. It’s not a coincidence that this group has been steadily outperforming this year:
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Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Company Description
Copart is a global provider of online auctions and vehicle remarketing services. The company enables the processing and selling of vehicles over the internet through its virtual bidding, auction-style sales technology to vehicle sellers, insurance companies, banks, charities, dealers, and vehicle rental companies.
Copart’s range of services includes online seller access, salvage estimation, end-of-life vehicle processing, transportation, vehicle inspection, title processing and procurement, flexible payment options, and dealer programs.
The company also enables the selling of vehicles through CashForCars.com; Copart Recycling service, which allows the public to purchase parts from salvaged vehicles; and Copart 360, an online technology platform for posting vehicle images. Copart sells its products to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, as well as to the public.
Earnings Trends and Future Estimates
CPRT has built up an impressive earnings history, surpassing earnings estimates in three of the last four quarters. Back in May, the company reported fiscal third-quarter earnings of $0.72/share, a 16.13% surprise over the $0.62 consensus estimate. CPRT has delivered a trailing four-quarter average earnings surprise of 5.61%.
The Dallas, Texas-based company primarily has two revenue streams: service revenue and purchased vehicles. Both earnings and revenues have grown steadily despite previous economic headwinds:
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For the current fiscal year, analysts have increased earnings estimates by 3.36% in the past 60 days. The Zacks Consensus EPS Estimate now stands at $2.46/share, reflecting potential growth of 10.31% relative to the prior year. Revenues are projected to climb 9.17% to $3.82 billion.
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Let’s Get Technical
CPRT shares have advanced nearly 46% in the past year. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Image Source: StockCharts
Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of higher highs. With both strong fundamentals and technicals, CPRT is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Copart has recently witnessed positive revisions. As long as this trend remains intact (and CPRT continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Bottom Line
Solid institutional buying should continue to provide a tailwind for the stock price. CPRT enjoys a dominant market position, along with a strong balance sheet and high liquidity. Increasing volume at recent breakout levels is another bullish sign for the stock.
Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix. Backed by a leading industry group and impressive history of earnings beats, it’s not difficult to see why this company is a compelling investment. Investors would be wise to consider CPRT as a portfolio candidate.
— Bryan Hayes
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Source: Zacks