Top Gas Utility Companies To Watch For 2015

Top Gas Utility Companies To Watch For 2015: Copart Inc. (CPRT)

Copart, Inc. provides online auctions and vehicle remarketing services in the United States, Canada, and the United Kingdom. The company offers a range of services for processing and selling vehicles over the Internet through its Virtual Bidding Second Generation Internet auction-style sales technology, to vehicle sellers, primarily insurance companies, banks and financial institutions, charities, car dealerships, fleet operators, and vehicle rental companies. Its services include online seller access, salvage estimation services, estimating services, end-of-life vehicle processing, virtual insured exchange, transportation services, vehicle inspection stations, on-demand reporting, DMV processing, flexible vehicle processing programs, member network, sales process, dealer services, direct services, and u-pull-it services, as well as CoPartfinder, an Internet-based used vehicle parts locator that provides vehicle dismantlers with resale opportunities for their purchases. Th e company sells its products to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, and exporters, as well as the general public. Copart, Inc. was founded in 1982 and is headquartered in Fairfield, California.

Advisors' Opinion:

• [By Geoff Gannon] wo companies in its industry that are public. The other company is part of a kind of conglomerate car sales company. That other company, KAR Auction Services (KAR), was much more explicit in detailing the competitive position of Copart and Insurance Auto Auctions. It even gave market share data.

  This is common. Often one company will choose not to give names or put percentages on certain competitive facts. The other company will do so. And even when that is not the case, the two companies will often make statements that — when taking together — can give y! ou rough indications of certain realities that neither company entirely intended to provide.

  The same is true for certain suppliers and customers. Although this is complicated by size. Very large customers of small companies are not good sources of information. But smaller companies often provide better insights into the larger suppliers, customers, etc., they deal with. That's because — due to their small size — more information is material and is explained in detail.

  I have found situations where one company simply says who the customer is that they are supplying. While the other company explains what product that supply goes into, the purchase amount, whether it is an exclusive arrangement, etc.

  So it is always important to — at a minimum — read the 10-Ks, 14As, and (where available) S-1s of every public company in the industry. This will give you a lot of insight into the competitive situation. Sometimes it is helpful to also look at customers and suppliers. However, this is not true of very large customers and suppliers because they will not discuss the specific area you are interested in.

  For example, Honeywell is a large customer of George Risk. It would do me no good to study Honeywell to learn about George Risk. Honeywell is a huge company. What they buy from George Risk is irrelevant to their shareholders. So they do not discuss it.

  An exception to this is

• [By Geoff Gannon] facility. They have to either buy somebody out (in which case you might not penalize them in free cash flow) or buy and develop a new salvage yard from scratch (in which case, almost all FCF calculations will punish them for this cap-ex).

  But, if you really believe that Copart can achieve anything like a 27% return on net tangible assets (my estimate of what they've done in the past) – should you be penalizing them at all?

  Isn't a $1 increase in inventory, receivables, and/or land that is going to earn 27 cents a year worth every bit as much as ! if it was! paid out to you (or was sitting in cash at a bank)?

  So, aren't earnings for a company that earns a 20%+ return on tangible investment clearly worth every bit as much as free cash flow?

  I would say yes. If and only if you believe the future return on the earnings retained by the business today (the marginal return) is in a sense comparable to the average return in the past.

  Don't confuse how fast a car is moving at this instant with how much distance it's covered in the past hour.

  The past average is just the past average. It is not the same as what the company will earn on the next dollar of capital it puts into the business.

  But it can be used as a guide. Especially for wide moat businesses.

  Like any rough guide – you want to leave a big margin of safety. So, if you think you can make 10% on the money in your brokerage account and the company you are investing in has an average unleveraged return on tangible net assets of 12% - that's pretty much a wash. I can't say that money is better off with the company than it is with you. And I think – absent tax concerns – it would make perfect sense to hope the company paid that cash out to you.

  At a 20% unleveraged return on tangible net assets I'd feel differently. The evidence points to the company having a better chance to earn more on the capital inside the business than you'd be able to ea

• [By Geoff Gannon]

  The same rule applies here that I mentioned with Copart (CPRT) in an earlier article. Although Wal-Mart is an inferior business to Copart from a pure ROI standpoint, it's still earning good returns on its investment.

• [By Geoff Gannon] s thousands of acres of land around the U.S. Some of it is quite valuable. It's carried on the balance sheet at $343 million. That number excludes buildings and improvements (which had an original cost of another $384 million).

  Some of that land – for example, some of the earliest properties they stil! l own in ! California – are worth much, much more than they are carried for.

  But that fact actually isn't that important. Why not?

  Because Copart earns very high returns on its net tangible assets. We're talking about probably 20% to 30% returns on tangible investment. You don't normally earn 20% on land. So, the value of land is not very high outside of Copart's operations relative to what it is worth inside Copart's operations.

  And, yes, the land is critical to Copart's operations. They don't necessarily have to own it – a major competitor leases almost all of its land – but they do have to control it.

  Now, if something were ever to happen to Copart's business where you had a long-term deterioration in the car salvage business that land might become very important to an analysis of Copart.

  Let's assume that tomorrow there is some high tech crash avoidance system. For example, cars are navigated remotely rather than being driven by someone inside the car.

  Under those circumstances, Copart's business would be forever changed. The volume of wrecks would decline. And Copart's invested assets – like its big salvage yards – would become much less valuable inside Copart's business.

  That means the market value of the land would now be a lot higher relative to the value Copart could get from using the land to store cars. This would change the analysis entirely. And suddenly Copart's balance sheet would be worth careful analysis.

  While this sounds farfetched, it's actually the kind of thing that happens at net-nets and other stocks that are valuable on a liquidat ion basis. They start

source from Top Stocks For 2015:http://www.topstocksblog.com/top-gas-utility-companies-to-watch-for-2015.html