- Insurance Unit Decline: Global insurance units fell 9% YoY (-4% ex-catastrophic), with US units down 10.7% (-4.8% ex-catastrophic), driven by policy shifts and softer claims activity.
- Revenue & Profit Margins: Consolidated revenue dropped 3.6% to $1.12B (+1.3% ex-catastrophic), while gross profit fell 6.2% to $492.8M (+0.4% ex-catastrophic adjustments).
- Financial Strength: Liquidity at $6.4B ($5.1B cash), with $500M in share repurchases covering 13M shares, reflecting robust capital returns to shareholders.
- Land Investment Strategy: Annual land spending in "several hundred million dollars," prioritizing ownership for long-term capacity and efficiency, with faster cycle times to optimize usage.
- Competitive Moats: Executives emphasized physical storage, global buyer base, and regulatory expertise as defenses against AI/disruption risks, maintaining market differentiation.
Insurance Business Trends
The insurance business trends were a key focus area for Copart's management. The company saw a 9% decline in global insurance units, with a 4% decline excluding catastrophic units from the prior year. In the US, insurance units declined 10.7%, or 4.8% excluding catastrophic units. Despite this, Copart generated record average selling prices for US insurance consignors, with US insurance ASPs increasing 6% year-over-year. CEO Jeff Liaw attributed the changes to shifts in policies, exposure levels, and softer claims activity.
Liquidity and Capital Allocation
Copart's liquidity stands at approximately $6.4 billion, with cash and cash equivalents of $5.1 billion and no debt. The company has repurchased over 13 million shares for an aggregate amount of over $500 million. The company's capital allocation strategy is focused on returning capital to shareholders, with Liaw stating that Copart evaluates various tools, including open market purchases and structured programs, to distribute capital to shareholders.
Valuation Metrics
To understand what's priced into Copart's stock, we can look at various valuation metrics. The company's P/E Ratio is 22.66, indicating a relatively high valuation compared to its earnings. The P/S Ratio is 7.65, suggesting that the market is pricing in significant revenue growth. The EV/EBITDA ratio is 15.46, which is relatively high. Additionally, the company's ROIC is 13.69%, and ROE is 16.68%, indicating a strong return on capital and equity.
Growth Prospects
Copart's growth prospects are driven by its investments in commercial capabilities, product, and tech. The company is watching for changes in the auto insurance industry, including cyclicality, premium growth, and combined ratios. Liaw expects growth to ebb and flow across carriers and views trends as often more cyclical than secular. The company's CDS segment saw a 5% year-over-year increase in unit volume, driven by growth in the user base.