Copart Inc (CPRT)

Investment Committee Summary

Investment Thesis

At $26.48 (13 October 2026) Copart trades on roughly 16x forward earnings, a clear discount to its peer median and well below its highs of the past year. The market is pricing something close to the recession rung of the scenario tree: flat revenue, margin compression and no re-rating. The engine disagrees on degree rather than on direction. The shares are trading cheap to a triangulated fair value of $31.98, a gap of +21%, with the probability-weighted expected value at $29.60 and the twelve-month target set from it at $30.74; the capex-bridge discounted cash flow sits in the same neighbourhood. Those values rest on a base operating margin near 35% (reported GAAP, TTM to Jul 2026), mid-single-digit growth, net cash of ~$4.1B and a capital-spending programme that still converts into strong free cash flow. What they do not deliver is conviction: the modelled odds of finishing above the current price are close to a coin toss, which is why the HOLD rating stands — the discount is real but not decisive. The single most damaging risk is the structural pricing and competition reset, in which earnings and the multiple compress together and today's discount proves to be fair value rather than mispricing; its target sits below the 52-week low.

Narrative drafted 2026-08-16 by claude-opus-5 under supervision; reviewed by Marinus 2026-08-16.

The dashboard below is the whole argument on one page: spot ($26.48) against each valuation anchor, the scenario tree, technicals and the options-implied move.

Anti-Thesis (The Real Bear Case)

The bear mechanism is concentration, not cycle. A small number of large insurance carriers supply the volume, and their incentive to claw back auction economics grows with every year that the fee take rises. If one major carrier moves vehicle disposition in-house or to a rival platform, pricing resets across the whole book at once: revenue falls, an operating margin near 35% (reported GAAP, TTM to Jul 2026) compresses toward a level normal for a contestable service business, and the market re-rates what it had treated as a toll road with no substitute. That combination produces the structural target, which sits below the 52-week low, and the engine assigns it roughly a fifth of the probability. The current depressed print may simply be the market pricing that shift early — in which case averaging in is catching a falling regime, not a bargain, and net cash of ~$4.1B does nothing to stop a repricing of the fee itself.

Key Debate

P/E Multiple explains 82% of Monte Carlo outcome variance — i.e. value is set by the multiple the market will pay, a rate/sentiment regime bet as much as an earnings bet.

What the Market Is Pricing In

At the current price, the market pays 16.3× consensus forward EPS, vs the house DCF terminal 16.0×, and a peer median 21.5×. The house DCF sits 29% above spot, so the market is pricing in less than the house case — roughly 3.8pp of revenue CAGR.

Variant perception: the house view is below-consensus, and the thesis is primarily FCF-driven.

Scenario Analysis

The scenario tree spans a structural 'Structural — Pricing / Competition Reset' downside ($15.20) to a 'Bull — Defensive Re-Rate' bull case ($46.90); the probability-weighted blend (PWEV $29.60) is +12% versus spot.

SBC charge: scenario targets are gross per-share prices; the PWEV is reduced by one year of stock-based-compensation dilution (1.5% of shares, on SBC ≈ 1% of revenue), trimming the gross PWEV of $30.04 to $29.60 (-1.5%). SBC is charged once, as dilution — never also deducted from FCF.

Scenario rationale — the driver path behind every target:

• Structural — Pricing / Competition Reset (20%, $15.20). Structural impairment — pricing / competition reset: earnings AND the multiple compress together. Target sits below the 52-week low by construction.
• Volume / Recession Pressure (17%, $24.40). Cyclical downturn — contracted service revenue + pricing + retention + bolt-on M&A weakens for 1–2 years before normalising.
• Base — Pricing + Volume + Tuck-Ins (35%, $31.60). Mid-cycle — normalised contracted service revenue + pricing + retention + bolt-on M&A; disciplined capital allocation; steady returns.
• Growth — Share / New-Service Expansion (20%, $40.20). Upside — share + new-service expansion lifts earnings above mid-cycle; the multiple expands modestly.
• Bull — Defensive Re-Rate (8%, $46.90). Upside tail — sustained tight conditions or a structural re-rate on share + new-service expansion.

Valuation Triangulation

Four weighted anchors — an intrinsic dcf, a scenario-weighted pwev, a monte carlo median (student-t + regime switching) and a peer p/e re-rate — read them with their basis in mind. The Monte Carlo, the scenario PWEV, any DCF's exit-multiple terminal and any peer re-rate key off a market multiple, so they are not independent; only a DCF's explicit-period cash flows are multiple-free, and its terminal usually carries most of its value. The discipline is to read the spread, not to treat four numbers as four independent votes.

The house blend DECLARES five anchor weights — DCF 35%, scenario PWEV 25%, Monte Carlo 15%, sum-of-parts 15%, peer re-rate 10%. For this name sum-of-parts is not computed, so 15% of the declared weight is redistributed across the anchors that exist — which is why the weights above differ from the declared ones. The fair value is unaffected by this disclosure; the blend has always worked this way. The company-lever row in the Sensitivity section is an illustrative EBIT × multiple value, not a sum-of-parts anchor.

Peer EV/Revenue re-rate — 0% weight: it duplicates the peer-multiple information already carried by the Peer P/E anchor while ignoring margin mix; weighting both would double-count the peer view. Shown as a cross-check.

Rating vs blend — the key debate. The rating tracks the multiple-discipline fair value (Monte Carlo $28.46 + scenario PWEV $29.60, ≈ spot); the weighted blend $31.98 (+21%) sits above it because the exit-multiple DCF ($34.23) is materially more optimistic than the market multiple. Whether the current multiple is justified is the central question for this name — and the principal upside risk to the rating.

Monte Carlo — the outcome distribution

10,000 paths, Student-t shocks (fat tails) with a regime-switching overlay. The median lands at $28.46 and 59% of paths finish above spot. The variance decomposition shows the p/e multiple is the dominant swing factor (82% of variance). Value is a multiple bet: fundamentals move the answer far less than the rating does.

DCF — explicit-period cash flows with an exit-multiple terminal

A 5-year cash-flow path discounted at a WACC of 8.0%, plus a terminal value of final-year FCF × 16.0x — a terminal multiple equal to 0.85 × the base multiple that the Monte Carlo and the scenario tree also use → $34.23. The terminal value is 75% of enterprise value, so this anchor moves with the multiple assumption. The heaviest anchor in this blend (41%); because its terminal is a market multiple, it is not independent of the multiple-driven anchors.

Peer benchmarking — relative value

Against its 4 peers in the same GICS sub-industry, re-rating to their median forward multiple (P/E 21.5x) implies $35.33. A premium is only justified by superior growth/margins; otherwise it is multiple risk. Weighted just 12% so market sentiment does not set the fair value.

Across all anchors the spread is 45% of the median — wide (genuine disagreement — the blend carries low valuation confidence).

Sensitivity

DCF/share — WACC × terminal multiple

DCF/share — revenue CAGR Δ × model op-margin Δ (Δ applied to the DCF's house margin path)

Tornado — DCF/share swing by driver (widest first)

Company lever — value at the base multiple vs Recurring Business Services multiple (base 18.0x)

Illustrative: segment EBIT × multiple, plus net cash, over basic shares — it does not enter the triangulated fair value.

Peer Quality & Weighting

Quality-weighted forward P/E: 18.9× (simple median 21.5×). Direct peers count 100%, segment 50%, broad 25%.

Historical-range cross-check: 52-week range $26.39–$45.89, centre $34.80 (+31% vs spot); spot sits at the 0th percentile of the range. Low-weight mean-reversion cross-check, not a fundamental anchor.

Risk / Reward & Margin of Safety

Reward/risk = (triangulated FV ÷ price − 1) ÷ (1 − 'Structural — Pricing / Competition Reset' target ÷ price). 'Structural — Pricing / Competition Reset' ($15.20, probability 20%) is the lowest-target scenario in the tree, taken gross of SBC dilution. Bull case (Bull — Defensive Re-Rate): $46.90.

Company Overview & Business Model

Copart Inc — INDUSTRIALS · SPECIALTY BUSINESS SERVICES. Copart, Inc. or simply Copart is a global provider of online vehicle auction and remarketing services to automotive resellers such as insurance, rental car, fleet and finance companies in 11 countries: the US, Canada, the UK, Germany, Ireland, Brazil, Spain, Dubai, Bahrain, Oman and Finland.

Company description as supplied by Alpha Vantage; not checked against the company's filings.

How it makes money.

† Model margin = gross margin − the opex ratio calibrated so the Monte Carlo median EPS meets the EPS target; it is not a reported operating margin.

Reported operating margin (GAAP): 35.4% for the fiscal year ended 2026-07-31; 35.4% TTM to 2026-07-31 (Alpha Vantage INCOME_STATEMENT).

Edge. Wide moat — A wide moat — Copart's two-sided salvage-auction network, entitled land/yard capacity and insurance-carrier integration create a density flywheel that is very hard to replicate, supporting a terminal multiple above the market (15x used in the DCF); but the moat's value hinges on carrier relationships — if a large carrier claws back auction economics the multiple should compress toward the ~16x market, not the 22x peer level.

Revenue-Segment Breakdown

The company-specific drivers behind the valuation — each segment carries its own growth, margin, multiple and capex intensity. (Tags: FACT reported · ESTIMATE from disclosures · INFERENCE judgment.)

For comparison, the company's reported GAAP operating margin was 35.4% for the fiscal year ended 2026-07-31; 35.4% TTM to 2026-07-31 (Alpha Vantage INCOME_STATEMENT).

Named Exposures

Demand & pricing cycle (FACT/ESTIMATE)

Capital intensity & shareholder returns (ESTIMATE)

Structural risk vs optionality (INFERENCE)

Balance Sheet & Liquidity

Balance-sheet data as of 2026-07-31 (Alpha Vantage).

Capital Allocation

Free-Cash-Flow Quality

Accounting quality: SBC 1% of revenue; cash conversion (OCF/NI) 108% — cash-backed.

Competitive Moat

Moat sources:

• FACT: two-sided marketplace (insurance sellers ↔ global buyer base) with network effects — more supply attracts more bidders and vice-versa
• FACT: entitled land / yard capacity is a scarce, permitting-gated asset that is expensive and slow for entrants to replicate
• FACT: deep integration into insurance-carrier total-loss workflows raises switching costs
• INFERENCE: moat is real but concentrated — a small number of large carriers supply the volume, so pricing power is shared with the customer

Earnings-Call Disconfirmation & Sentiment

Derived signals from the MCH market-data store (Alpha Vantage transcripts + news). Quantitative tone only — a disconfirmation flag, not a substitute for reading the call.

Management vs analyst tone (2026Q4): management +0.57 vs analyst floor +0.13 → delta +0.44 (n=34 mgmt / 31 Q&A; 56th pctile across the S&P book, z +0.2).

Flag: TYPICAL — management-vs-analyst tone within the normal cross-sectional range.

News (last 365d, 1215 articles): avg ticker sentiment +0.03 (bullish 14% / bearish 7%)

Consensus & Market Expectations

_Consensus figures: Alpha Vantage sell-side aggregates. Where the house view sits materially above or below the street, the divergence is itself a datum — see the thesis.

Catalyst Calendar

• 2026-11-15 (~34d) — Major insurance-carrier auction contract renewal (authored)
• 2026-11-19 (~38d) — Quarterly earnings — est. EPS $0.41 (AV EARNINGS_CALENDAR)
• 2027-01-30 (~110d) — Yard-capacity / land-entitlement expansion update (authored)
• 2027-04-20 (~190d) — International + non-insurance (dealer/fleet) buyer expansion update (authored)

Forecast Track Record

• EPS surprise: beat 50% of the last 8 quarters; average surprise +1.8%.

Catalyst Timeline

6 catalysts in the next 90 days (of 15 tracked). Importance 1–3; confidence 0–1.

_Sources: extended.catalysts, data/catalysts/.json, data/catalysts/macro.json, AV DIVIDENDS, opex 3rd-Friday calc.

Regulatory & Legal Risk

Probabilities and sensitivities are analyst estimates, not market-implied.

Scenario Macro & Key Risks

Scenario-macro rows withheld pending re-authoring: 1 carrying another cluster's vocabulary or a frozen figure — recorded in the narrative quarantine ledger.

Decision Rules (Machine-Checked)

Stance: Hold — 1 bullish / 1 bearish / 0 caution rules triggered of 6 evaluable (0 lacked data).

Machine-checked rules over disclosed inputs. The authored falsification triggers elsewhere in this report are analyst judgment and are NOT evaluated here. The stance is what the model's own rules read on this name; it does not modify the published research rating, and it is not personal financial advice.

Reasons the Thesis Could Fail (Falsifiable)

Pre-registered signals that would break the thesis — each polices a specific scenario boundary and is checked at every earnings update:

• Total revenue growth (y/y) < 3% y/y (2 consecutive prints). (rationale withheld pending re-authoring — frozen figure or verdict)
• Operating margin < 40% (2 consecutive prints). (rationale withheld pending re-authoring — frozen figure or verdict)
• US unit / salvage volume growth (y/y) < 0% y/y (2 consecutive prints). Volume is the recurring core of the model. Two prints of outright volume decline, absent a disclosed one-off, indicates share loss or a total-loss-frequency reversal rather than normal cyclicality.
• Annualised capex > $0.85B without commensurate revenue acceleration (single event). (rationale withheld pending re-authoring — frozen figure or verdict)
• Major customer disintermediation event = a top-5 insurance carrier moves salvage disposition in-house or to a competing platform (single event). (rationale withheld pending re-authoring — frozen figure or verdict)

Fact / Inference / Speculation

• FACT: Spot $26.48; 52-week range $26.39–$45.89; engine rating HOLD; house target $30.74 (+16%). (source: Alpha Vantage 2026-10-12, 13 October 2026)
• INFERENCE: Triangulated FV $31.98 (+21% vs spot · triangulated FV); the rating tracks the Monte-Carlo + scenario-PWEV core; the DCF anchor sits above the multiple-discipline core.
• SPECULATION: At current prices the embedded bet is that the market keeps paying the current multiple through the capex cycle — a regime call the engine cannot verify from fundamentals alone.

Conviction Score

Research Conviction measures the strength and quality of the research setup — input coverage, financial quality, valuation support, process agreement. It is NOT the probability that the recommendation succeeds; the forecast track record section is the evidence on that.

67.7/100 (confidence band 53.8–81.5), 84th percentile of 928 covered names (as of 2026-10-12). Weighted composite under config ros-1.21.0 — every component and its inputs below.

Missing inputs (macro tailwinds) are excluded and the remaining weights renormalised; the confidence band widens accordingly.

Score history: 66.1 → 66.3 → 65.4 → 65.7 → 66.7 → 66.6 → 66.8 → 66.8.

Probability-Weighted Return Profile

Horizon: 1 year — at this horizon CAGR equals total return by definition. Expected values are the probability-weighted sums over the full scenario set below.

The gross expected return is the probability-weighted scenario return (it reconciles to the gross PWEV); the diluted figure applies the SBC share-count charge and matches the published PWEV-based target.

Expected Alpha

Expected return minus the return this name is REQUIRED to deliver for its risk (1-year horizon). Constants are pre-registered (preregistered-static (amendment #2, 2026-07-29); not fitted to MCH outcomes).

A negative expected alpha does not change the rating — it says the expected return does not clear the risk-adjusted hurdle at today's price. Rating mechanics are unchanged by this section.

Probability Cross-Checks

Not authoritative. The scenario probabilities in this report are AUTHORED — a judgement about how the world might go, not a measurement. Nothing below modifies them, the target, the rating or any position size. These checks ask only whether anything outside our own model agrees with us; where it does not, that is information for the reader, not a correction we have quietly applied.

Authored set: 5 scenarios, probabilities summing to 1.0, mean target $30.04.

Factor Exposures

Cross-sectional percentiles over 928 covered names (style scores sector-demeaned; thematic = return-beta to the theme's proxy ETF). 50 = estate median.

Market interaction: correlation vs SPY +0.35, vs QQQ +0.26 (trailing ~1y daily returns).

Rating Bridge

Rating = HOLD because:

• Probability-weighted scenario value implies +12% vs spot
• Monte Carlo median implies +7% vs spot
• DCF fair value (exit-multiple terminal) implies +29% vs spot
• Bear case (Structural — Pricing / Competition Reset) downside is -43% vs spot
• Net: reward/risk of 0.5× is not asymmetric enough for a Buy and not impaired enough for a Sell — hence Hold.

Model Appendix

DCF — line items

FCF is bridged: NOPAT + D&A − Capex − ΔNWC (capex intensity 10% of revenue, weighted from the segments) — not a single conversion fudge.

WACC 8.0% · Σ PV(FCF) $7B + PV(terminal) $20B = EV $27B; + net cash $4.1B → equity $31B ÷ diluted shares $0.92B = $34.23/share (exit-multiple terminal).

• Gordon terminal → $37.91/share — a single-point perpetual-growth cross-check at g = 2.5% (one growth rate, not a range; it is not in the blend).
• Incremental ROIC on the forecast capex ≈ 12% vs WACC 8.0% → above WACC — the build is value-creative.

Peer set

Implied prices at the peer medians: same-sub-industry median fwd P/E → $35.33; EV/Rev → $21.88.

Weighted fair-value math

Assumption Register

Sensitivity-ranked drivers (widest fair-value swing first): Revenue CAGR ±3pp (8.0); Terminal × ±15% (7.0); Model op margin ±3pp (4.0); Capex intensity ±15% (3.0); WACC ±1pp (2.0).

Inputs, Sources & Confidence

Every load-bearing input, labelled by type and confidence. (reported fact · company guidance · consensus estimate · market data · house estimate · inference.)

Research Provenance

Load-Bearing Assumptions

DCF: WACC 8.0%, terminal multiple 16×, FY+5 revenue $6B. Triangulation leans 41% on DCF, 29% on PWEV, 18% on the Monte Carlo median, 12% on peer-implied value.