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Will Copart's (CPRT) Expansion Drive Bolster Q4 Earnings?

Zacks Equity Research

Copart, Inc. CPRT is scheduled to release fourth-quarter fiscal 2019 results after the closing bell on Sep 4. The current Zacks Consensus Estimate for the quarter to be reported is earnings per share of 56 cents on revenues of 507 million.

In the last reported quarter, the Texas-based company beat the consensus mark by 8.20%, primarily on the back of higher service revenues. As far as earnings surprises are concerned, the online vehicle auctioning company has a good record, having outpaced the Zacks Consensus Estimate thrice in the last four quarters. This is depicted in the graph below:

Copart, Inc. Price and EPS Surprise


Copart, Inc. Price and EPS Surprise

Copart, Inc. price-eps-surprise | Copart, Inc. Quote

While investors are keeping their fingers crossed and anticipating that Copart — whose peersinclude Ritchie Bros. Auctioneers Incorporated RBA, Byd Co., Ltd. BYDDY and Sotheby's BID — will surpass earnings estimates this time around, our model does not predict the same.

Which Way are Top and Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for revenues is pegged at $507 million, indicating an improvement from $449 million recorded in the prior-year quarter. The Zacks Consensus Estimate for fiscal fourth-quarter earnings of 56 cents per share also suggests growth from 49 cents recorded in the corresponding quarter of the prior year. However, earnings estimates for the to-be-reported quarter have remained unchanged over the past month.

Let's delve deeper into factors that are likely to influence Copart’s fiscal fourth-quarter earnings.

Factors Setting the Tone

Copart’s active presence across U.S. and international markets is likely to aid worldwide sales volumes. High activity levels in the United States and expansion efforts in European markets — primarily in the United Kingdom and Germany — will boost the firm’s revenues in the to-be-reported quarter. Evidently, the Zacks Consensus Estimates for service revenues and vehicle sales is pegged at $441 million and $68 million, marking y/y growth of 12.5% and 17.2%, respectively.

In addition to opening hubs and expanding its network of facilities, the company’s strategic acquisitions are also likely to drive revenues. In March 2019, Copart acquired Kentucky-based online auctioning platform, Vincent Auto Solutions, which will strengthen its footprint in western Kentucky and boost sales in the quarter to be reported.

However, increased investments to support growth initiatives, including domestic and international expansion of business, may dent the firm’s margins. As it is, the company is bearing the brunt of high operating expenses over the last several quarters. The trend is likely to continue, which may lower its profit levels to some extent.

What Our Model Says

Our proven model does not conclusively predict that Copart will beat the Zacks Consensus Estimate in the to-be-reported quarter. This is because it doesn't have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate Estimate are pegged at 56 cents a share.

Zacks Rank: Copart currently has a Zacks Rank #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be sure of an earnings beat. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

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