Copart Earnings: Hard to Find Problems in Copart's Growth Runway

Copart started fiscal 2025 with solid growth. We are increasing our fair value estimate to $57 from $50. The change is from the time value of money, higher long-term operating income growth, and higher average US selling prices for fiscal 2025 due to the first quarter’s 1% decline outpacing the Manheim Used Vehicle Value Index’s 4% fall. We remain optimistic about Copart’s long-term unit volume growth, given we expect continued higher technology content in vehicles, enabling further increases in the total loss frequency rate (the percentage of vehicles in an accident deemed a total loss). Copart’s expansion into heavy equipment auctions with the recent Purple Wave deal continues to look good, with further double-digit growth in that business for the quarter. The company has doubled the sales team since the acquisition, which is causing higher overheads as a percentage of sales than we had been modeling for fiscal 2025. However, we expect that investment to lead to gross profit growth and scale over time.