Why Copart Shares Burned Rubber

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of online auction and vehicle marketing service company Copart (NASDAQ: CPRT  ) popped as much as 11% after hedge fund Jana Partners, run by Barry Rosenstein, announced it had purchased shares of the company.

So what: It wasn't so much the purchase of Copart shares by Jana itself that sent shares screaming higher but the reasoning behind the purchase. According to a report from Bloomberg taken from a letter sent by Jana to shareholders, Jana sees considerable value to be unlocked if Copart were to convert to a real estate investment trust. The letter also notes that much of Copart's earnings could be classified as qualifying real estate income if it made the switch.

Now what: Jana's position is clearly exciting investors, as REITs are required to pay back at least 90% of their profits to shareholders in the form of a dividend in return for favorable tax status. Based on Copart's projected 2013 EPS, a REIT conversion would give the company a yield of 4% or possibly even higher. Although the idea sounds great on paper, it can take years to get approved for the conversion, and right now this is mere speculation on Jana's part. With auto sales slowing and Copart now at 20 times forward earnings, I'd personally consider driving off the lot.

Craving more input? Start by adding Copart to your free and personalized Watchlist so you can keep up on the latest news with the company.

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  • Report this Comment On January 31, 2013, at 8:18 PM, dstb wrote:

    The chase for yield is amusing. This is of course the new bubble created by the Fed. And how is the economy doing again? Economists should be banned from being employed outside of menial labor. Low rates and QE "20" will never help employment.

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