Foolish Forecast: No Junk With Copart

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Junkyard operator Copart (Nasdaq: CPRT) will report fourth-quarter and full-year financial results after the market closes today. Let's see whether this is a stock getting ready to drive investors to the scrap heap.

What analysts say:

• Buy, sell, or waffle? Of the eight analysts covering the Motley Fool Stock Advisor recommendation, six have driven off with a buy recommendation, while two say hold.
• Revenues. That bullishness is in spite of a consensus estimate that sales will fall 1% this quarter from last year, to come in at $135.6 million.
• Earnings. Perhaps it's because profits are expected to grow 6% despite the revenue decline, from $0.33 to $0.35 per share.

What management says:
Copart is going up against tough comparisons from last year, when the company posted large increases in revenues and profits but slumped a bit as it worked off the remnants of vehicles salvaged as a result of hurricanes Rita and Katrina. While the hurricanes had provided quite an influx of vehicles, costs associated with their processing also rose. The company doesn't expect to feel the effects of those particular storms going forward. An analyst upgrade last month gave Copart a boost, but the stock has had a rocky ride for much of the year.

What management does:
While junkyards seem to fit the Peter Lynch description of unloved industries, Copart is actually more than just a scrap-heap operator. The business has changed from one of local junkyards to a national online auction house through which remodelers and scrap-metal and parts dealers can bid on cars supplied primarily by insurance companies. It's that software end of the business that has allowed Copart to steadily boost its margins, as the virtual auctions draw more bidders -- from more parts of the country -- than in-person auctions do.

Margin	04/06	07/06	10/06	01/07	04/07
Gross	43.6%	46.3%	47.6%	49.1%	50.1%
Operating	32.3%	35.1%	36.5%	37.7%	38.7%
Net	18%	18.3%	19.2%	23.2%	24.1%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Copart is the largest of the national salvage operations, with recycler LKQ (Nasdaq: LKQX) being the only other publicly traded company. However, along with private-equity-owned No. 2 ADESA, Copart processes some 60% of the cars that are totaled in the country. Its auction software, dubbed VB2, has given it the ability to present its vehicles to far more buyers than could possibly show up at locally held auctions. Yet by opening up the auctions to non-industry types, it has set itself up for criticism from buyers who perhaps don't realize or understand the nature of what a salvaged car is.

Fools should keep an eye out for this margin-expander's release today and going forward. The volatility of the company's shares should provide investors with numerous opportunities to buy into the leading salvage operation.

Related Foolishness:

• Salvaging Returns With Copart
• Copart Does Its Part