Estimating The Fair Value Of Copart, Inc. (NASDAQ:CPRT)

In This Article:

Key Insights

  • The projected fair value for Copart is US$60.16 based on 2 Stage Free Cash Flow to Equity

  • Current share price of US$56.67 suggests Copart is potentially trading close to its fair value

  • Our fair value estimate is 7.4% higher than Copart's analyst price target of US$56.01

Does the November share price for Copart, Inc. (NASDAQ:CPRT) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the forecast future cash flows of the company and discounting them back to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

View our latest analysis for Copart

The Calculation

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

US$1.19b

US$1.52b

US$1.83b

US$2.06b

US$2.25b

US$2.42b

US$2.56b

US$2.69b

US$2.81b

US$2.91b

Growth Rate Estimate Source

Analyst x2

Analyst x2

Analyst x2

Est @ 12.50%

Est @ 9.53%

Est @ 7.46%

Est @ 6.01%

Est @ 4.99%

Est @ 4.28%

Est @ 3.78%

Present Value ($, Millions) Discounted @ 6.4%

US$1.1k

US$1.3k

US$1.5k

US$1.6k

US$1.7k

US$1.7k

US$1.7k

US$1.6k

US$1.6k

US$1.6k

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$15b

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