Offshore

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Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: A quality valuation analysis on $CPRT 🧘🏽‍♂️

•NTM P/E Ratio: 28.94x
•3-Year Mean: 31.98x

•NTM FCF Yield: 2.90%
•3-Year Mean: 2.62%

As you can see, $CPRT appears to be trading slightly below fair value

Going forward, investors can expect to receive ~10% MORE in earnings per share & ~11% MORE in FCF per share🧠***

Before we get into valuation, let’s take a look at why $CPRT is a quality business

BALANCE SHEET✅
•Cash & Equivalents: $4.38B
•Long-Term Debt: $0

$CPRT has an excellent balance sheet

RETURN ON CAPITAL✅
•2020: 26.5%
•2021: 27.6%
•2022: 28.5%
•2023: 24.0%
•2024: 20.3%
•LTM: 18.9%

RETURN ON EQUITY✅
•2020: 32.8%
•2021: 31.1%
•2022: 26.7%
•2023: 23.3%
•2024: 20.1%
•LTM: 18.4%

$CPRT has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2014: $1.16B
•2024: $4.24B
•CAGR: 13.83%

CASH FROM OPERATIONS✅
•2014: $0.26B
•2024: $1.47B
•CAGR: 18.91%

NORMALIZED EPS ✅
•2014: $0.20
•2024: $1.40
•CAGR: 21.48%

SHARE BUYBACKS🆗
•2014 Shares Outstanding: 1.05B
•LTM Shares Outstanding: 0.96B

MARGINS✅
•LTM Gross Margins: 46.5%
•LTM Operating Margins: 37.0%
•LTM Gross Margins: 32.2%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~10% MORE in EPS & ~11% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $CPRT has to grow earnings at a 14.47% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2028 EPS growth over the next few years to be less than the (14.47%) required growth rate:

2025E: $1.56 (11.1% YoY) *FY Jul

2026E: $1.73 (10.9% YoY)
2027E: $1.94 (12.6% YoY)
2028E: $2.22 (14.2% YoY)

$CPRT has a great track record of meeting analyst estimates ~2 years out, but let’s assume $CPRT ends 2028 with $2.22 in EPS & see its CAGR potential assuming different multiples

32x P/E: $71.04💵 … ~14.5% CAGR

31x P/E: $68.82💵 … ~13.3% CAGR

30x P/E: $66.60💵 … ~12.0% CAGR

29x P/E: $64.38💵 … ~10.8% CAGR

28x P/E: $62.16💵 … ~9.5% CAGR

27x P/E: $62.16💵 … ~8.1% CAGR

As you can see, we’d have to assume ~29x earnings for $CPRT to have double digit CAGR potential

While I believe $CPRT can reasonably demand a 30x - 32x multiple (given its wide moat, extensive land ownership, high ROIC & long history of strong & improving fundamentals), I wouldn’t want to rely on that assumption as this leaves us with no margin of safety

Albeit $CPRT is one of those businesses that rarely trades for a deep discount & 28x - 29x appears to be more than fair for a business of its caliber, especially when we account for the $4.50 cash per share today

Therefore, if I wanted to initiate a position in $CPRT, may consider 1/2 the position at $47 & the other 1/2 at $40-$43

Today at $47💵 $CPRT appears to be a good consideration for investment

I consider $CPRT an excellent buy closer to $42💵 where I can potentially expect 13% CAGR assuming a 27x end multiple in 2028

#stocks #investing
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥[...]

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