TIP845: Copart Stock (CPRT): Is Copart Now a Buy? w/ Daniel Mahncke & Shawn O'Malley

What It Covers

Daniel Mahncke and Shawn O'Malley revisit Copart (CPRT), a salvage vehicle marketplace operating in a US duopoly with IAA, after the stock fell roughly 30% from highs. They examine whether slowing revenue growth, a CEO transition back to Jay Adair, Progressive Insurance's volume shift to IAA, and declining insurance coverage rates justify buying shares again.

Key Questions Answered

• •Land ownership as durable moat: Copart owns approximately 250 salvage yards globally while competitor IAA leases its land. This distinction matters because zoning permits for new salvage yards are increasingly difficult to obtain as cities expand. Jay Adair confirmed Copart no longer needs to spend the current $500M annually on land acquisition, potentially freeing $250M or more in annual free cash flow against a $1.2–1.3B FCF baseline.
• •Total loss frequency as structural tailwind: The percentage of accident claims insurers choose to total rather than repair rose from 8% to nearly 24% over 35 years. Modern vehicles packed with cameras, radar, and lane-assist sensors cost far more to recalibrate after collisions, making totaling economically rational. Each additional dollar Copart generates at auction makes totaling more attractive, creating a self-reinforcing cycle that competes directly against body shops.
• •Progressive Insurance concentration risk: One insurer, Progressive, now the largest US auto insurer adding 2.5–3M policies annually, sends roughly 75–90% of its volume to IAA rather than Copart. This single customer relationship explains most of Copart's US volume decline. IAA accepts significantly lower margins on Progressive business (15–20% EBIT vs. Copart's 36%), making it structurally difficult for Copart to win that volume back without sacrificing profitability.
• •Underinsurance cycle suppressing volumes: Between 2022 and 2024, US full-coverage auto premiums rose 46%, pushing roughly one-third of American drivers to drop coverage, raise deductibles, or go uninsured. CCC data shows uninsured or underinsured third-party claims nearly doubled to 16% by late 2024, and approximately 25% of repairs are now self-paid. Copart's own data confirms insured vehicles on the road dropped 4% year-over-year despite total vehicle counts rising.
• •International business as next growth engine: Copart's international service revenue grew nearly 20% while lower-margin vehicle sales revenue fell close to 20%, signaling successful conversion to the higher-margin fee model abroad. International EBIT rose 50% year-over-year versus under 4% for the US segment. Germany's adoption of the service model serves as a replicable blueprint, and with under 10% market share and no real European competitor, the international runway remains substantial.
• •Buyback signal and valuation framework: After five consecutive years without repurchases, Copart bought back over $1.6B in stock across two quarters, with $1.4B concentrated in the most recent quarter at near-cyclical lows. A reverse DCF at current prices implies the market prices in roughly 5% annual growth. At mid-single-digit growth, expected returns approximate 8–10%; a return to double-digit top-line growth would likely produce mid-to-high-teen annualized returns.