tekennedy (57.03)

11 Comments – Post Your Own

#1) On December 28, 2010 at 7:41 PM, TMFBabo (100.00) wrote:

I intend to read the analysis with a much more critical eye than I would read a random CAPS pitch - I'll post whatever I have later on.  I'll probably have more structural changes (grammar, etc.) than qualitative changes, but who knows. 

First, I have a question for you: what is the title of the job you want? For example, "equity research associate at a buy side investment management firm" was the title I wanted (I forget the exact title, but this is close enough).

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#2) On December 28, 2010 at 7:59 PM, anchak (99.85) wrote:

Very nice.

You did a summary thesis - talked about target market and competitive advantage and entry barriers

Next was P&L - this makes it a cogent argument.

In between I would possibly suggest a SWOT analysis - mainly on business viability /continuity.

I did not check grammar - concentrated on flow - and logical development  

 

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#3) On December 28, 2010 at 7:59 PM, ChrisGraley (99.68) wrote:

Since the report seems to be geared toward a value investor, I would put a little more meat in the valuation section. Also it would be good to end with a summation statement.

Overall very good.

Oh and instead of "has no margin of safety" I personally would go with "has very little margin of safety".

Good luck!

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#4) On December 28, 2010 at 8:02 PM, zymok (46.52) wrote:

Tom,

First of all, I wish you the best in your job hunt.

Is attaching this type of writeup normal for your industry?  If so, is there a set format, or are you free to organize as you see fit?

I read through the sample, and while it looks to me like a pretty good draft, it needs some editing.  I'm providing some specific suggestions, but I strongly suggest you sit down with someone who has strong technical writing skills and go over your piece in detail.

On to the specifics:

Your sentences are predominately simple sentences; this gives a rather jolting cadence to the text.  Try using more complex structures to improve the flow of the material.

Avoid repetitive phrases, such as the use of "as it" in paragraph one.

Make sure all your referents are defined (or are common knowledge).  Specifically, paragraph one references IAAI with no  introduction.

Avoid weasel words like "it is expected".

Avoid ambiguity.  In paragraph one, last sentence, does "their" refer to Copart alone or both Copart and IAAI?

Rotate your tires.  (Just checking to see if you're paying attention).

Clean up the figures.  Fonts should be consistent across all figures.  I'm assuming that the format you chose is standard or at least common in your industry.

Watch the use of unneccesary abbreviations.  In figure five, I assume "Cap Ex" refers to capital expenditures. This should be spelled out.

The 3-D bars in figure five detract from it's readability.  Consider using simple 2-D bars instead.

Figures should normally be placed after their first reference, not before as with figure five.

I'm not a financial professional, so maybe my ignorance is showing here, but I'm confused by figure five.  Sometimes "cash returned to shareholders" is a positive cash flow, and sometimes negative.  Is this intended?

Avoid second person references, such as "you need" in the final paragraph.  Maybe what I really need is a beer :)

Consider using a summary table or bulleted list to highlight your major points, if this is permissable within your industry.  If possible, place this near the beginning of your paper.

Be firmer with your recommendations.  Saying "Copart is a worthwhile candidate to consider" really doesn't tell me much.

I hope you find these comments useful.  You've got a good paper going, and I'd like to see the final version.

 

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#5) On December 28, 2010 at 8:17 PM, TMFBabo (100.00) wrote:

My comments will go chronologically.  Italicized sentences are yours and the regular sentences are my changes.  I'll start off with some personal remarks and then get into it.

First off, I think I'd include some stats or ratios about the company at the beginning or end in an easy-to-find format like so:

Copart, Inc. (Nasdaq: CPRT)
Share Price: $37.44
Intrinsic Value: $44 (made the number up)
Yadda yadda

I don't personally agree with the way you've ordered the sections, but I can see how it makes sense the way you've ordered them.  Also, I might add a short conclusion instead of having your conclusion be part of the valuation section.

Buyers and sellers will be attracted to the largest auctions as it provides sellers the largest audience of buyers and gives buyers the largest selection.

Buyers and sellers will be attracted to the largest auctions as they provide sellers the largest audience of buyers and give buyers the largest selection.

The three words I changed refer back to auctions, so they must be the forms that would go with a plural.

Copart has been able to grow by acquiring smaller competitors and through internal expansion.

Nothing wrong here, but I prefer to use "grow organically" or "organic growth" as that seems to be the standard term for internal expansion.  You use "internal growth" again in your "competitive analysis" subhead.  I'd personally add "organic" to that one as well.

Since 2000, Copart has grown their revenues and earnings per share (EPS)...

What is the period end date? Does this go from 2000 to 2010 YTD (ie Q3)? I might just be being nit-picky here.

Also, Copart is a single entity (a corporation).  Instead of "their" for the possessive and "they" for the subject, you should be using "its" for the possessive and "it" for the subject.  I underlined many instances on my personal printed copy where the plural versions should be replaced with singular versions, but I'm not going to list them all here.

There is added risk to an investment in Copart as there is currently no margin of safety, but investors would be wise to keep the company on their radar.

...their radars.  Since the word "radars" refers to "investors" - you want to use the plural (I think).  

...assuming a starting cash flow of $140 million, 8.5% initial growth followed by 6% growth years 6 through 10 and 3.5% growth in perpetuity.

I think I'd explicitly state "years 1 through 5" for the first part.  This is my personal preference, but I don't like saying "initial" and assuming people know it's for years 1 through 5 (although they obviously will if they've ever done valuation before).

In your DCF model, you assume 3.5% growth in perpetuity.  Considering automobile growth was 1.7% from 1999 to 2009 and that GDP growth is typically 2% to 3%, what is the thought process behind the 3.5% number? Also, what discount rate did you use?

Since DCF models can spit out very different valuations based on very simple tweaks to the assumptions, I think it's important to include assumptions such as the discount rate used.

With Copart priced at a fair value it is a worthwhile candidate to consider for a portfolio.

I'm not sure I'd recommend a purchase on a company that I just told someone is fairly valued.  

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#6) On December 28, 2010 at 9:22 PM, Option1307 (30.55) wrote:

Best of luck with the job hunt!

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#7) On December 29, 2010 at 12:10 AM, caterpillar10 (67.50) wrote:

Going from having read enhuf reports to choke a herd of hippos...not yours just becuz i'm on a tiny platform now and don't want the flashplayer they say i must have to read it.....what is seldom dealt with well - so if you do it they will recognize your genius:) dah da da dah......what's my *******CATALYST*****? whaaasup w/the outfit or its' business or the price of its' equity that i should move on it now - say i believe in the dread 'double dip' - why won't these be toast in a short time. forinstance is there something they might do that alleviates a constrictive 'bottleneck' in the supply/demand environment of their industry to such an extent that a general downturn would be a of minimal concern.

what's my entry point?....surely, suh, you do not xpect me to place (wrinkles his nose while lifting it) a market order:( 

years ago i was with a small innovative telecom firm that side stepped the popping of the 'tech bubble'. i didn't do the hiring - just had the misfortune to have a desk near the fax - every position that opened - 90 RESUMES/PRESENTATIONS A DAY. pain in the ass - but it changed the way i do presentations for ever more.

once you have conceived a brilliant catalyst - if you can't w/these, then find others - that is your first sentence....then xplain it.

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#8) On December 29, 2010 at 12:42 AM, tekennedy (57.03) wrote:

I'm impressed with the comments. 

I will probably add a summation and I'll likely add a bit to the valuation part.  I'd considered a SWOT but decided against it as it would be more rigid and have a lot of redundancies with other sections.  The idea of adding stats at the beginning is a great idea as it gives a more concrete footing for later valuations and is a good reference.  Also the detailed grammer corrections are appreciated. 

@TMFBabo- As of this point I'm looking to get into either a position as an analyst or an investment advisor.  I'd like to get my foot in the door and would like to learn in a more porfessional setting as opposed to the individual learning I've had since I've gotten out of school.  Simply put I'll gear my resume toward the types of positions that are open. 

What order would you have the sections?  The paper went to the present, I think that would go well with a header with price, etc.  I'd given some discussion to the perpetuity growth in the competitive analysis section (beyond the 1.7% unit growth, inflation and price increases made 3.5% seem reasonable).  It makes perfect sense to go into detail here as it seems a good way to beef up the valuation section.

@zymok- appreciate the details, as far as I know there is no set format so I intended to make it as readable as possible.  I had actually went through the paper and meaningfully simplified sentences as, left to my devices I can ramble a bit.  I guess I went to far, lol.  I hadn't caught the confusion in "cash returned to shareholders."  If negative (underneath the axis) it is buybacks or dividends, if positive it is cash received from shareholders such as an equity offering.  That definately needs clarifying, I may need to give it a different term for positive and negative to make it more understandable.

Thanks for the input, keep it coming.  Also, if anyone knows a company hiring in the Boston area let me know!

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#9) On December 29, 2010 at 1:25 PM, TMFBabo (100.00) wrote:

First, I will state that I did enjoy your write-up and I learned more about the salvaged auto market because of you - I wish I'd said that in my previous comments.  I love seeing analyses like these posted on CAPS.   

I totally get the "foot in the door" idea.  If you're going for an analyst position, I'd nail down the specifics for each position (buy/sell side, exact position title) and tailor your resume and such.  It sounds like you're already doing that, but I do want to reiterate that I think that's very important.

I thought about your section ordering again and I believe it's simply a matter of preference - I did state that yours were fine as is in my earlier comment. 

I did think 3.5% was reasonable, but I wanted to see you state explicitly why.  That is possibly overkill - I'm not sure on that one.

The thing that gets me the most, though, was that you recommended a fairly valued company.  I'm not sure a value investing outfit would look favorably on that. 

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#10) On January 03, 2011 at 12:43 AM, rhallbick (99.74) wrote:

You have received a number of comments from some very capable Fools, which I am sure will be helpful to you.  I haven’t read through them though, because I don’t want them to influence my comments.  I am going to just go on and on about things that I think could be better, but please don’t think I’m not impressed with the work that you have done so far.  I also think that you have chosen a rather difficult company to analyze, as it is possible that they are at a transitional phase of their development.

My overall impression:

I got the feeling through most of the analysis that you were trying to sell the company to me.  There are quite a few positive subjective phrases used that added no new specific information; they just made it sound more like an advertisement.  I would expect that approach at a company’s investor presentation, but not from an unbiased analyst review.

You clearly have compiled quite a bit of pertinent information.  I would prefer to see it organized more, with related pieces placed together (and not repeated).  Sometimes, when you work on a document for a long time, it can be difficult to see the changes that might improve the overall structure.  Hence, the importance of editors, or in this case, CAPS feedback.  You might want to consider developing a standardized format, at least to use as a starting point for your reports.  Whether or not you use each talking point in the final report, if you start with an outline that includes, for example, “How do they stack up against their competitors?”, “What are the catalysts for future growth?”, “How are changes in governmental policies affecting the company?”, etc. and then place the relevant information where it belongs, that might be of some help.  I always expect to see a buy, sell or hold recommendation only appear in the final paragraph, with a quick summary of the reasons for it.

The very beginning of the report needs to be more formal.  I would ditch “Thesis” and just start out with company name, stock symbol, market where it trades, etc. such that all together it forms an heading block that gives the impression of professionalism.  When you have completed your final version, don’t forget to put your name on it.

Comments specifically for Copart:

I didn’t get a complete feel for how Copart fits into its market as I was reading the report.  You didn’t mention the Canadian operation and introduced the UK operation as an aside to making data adjustments.  As you likely know from your research, the UK operation is currently a bit of an under-performer due to Copart having to purchase the vehicles, but you don’t directly and clearly address this.  Is that a temporary situation or are they always going to have to tie up capital in UK inventory?  I don’t know the answer to that, but I would want to know before I bought their stock.

You have some good statistics included about the various market sizes and Coparts’ market share.  Bring all of that together, clear and concise, in one paragraph.  I know that KAR has four times the revenue as CPRT, but I didn’t clearly understand that from your write-up.  I don’t know anything about Manheim.  Are they a competitive threat to CPRT’s core business?  (Consider my questions rhetorical.  These are things I want to know before investing.)  My impression is that CPRT was an early player in a consolidating industry that also benefited from the growth of the Internet.  But that’s ancient history now.  Where do they stand today against their two larger competitors?  What edge do they have?  Are they gaining or losing market share?

Here are some other things to consider about the industry.  Accident rates have been falling for five years.  They will fall even further if the government limits cell phone usage while driving.  There was a decline in total miles driven in 2008 and 2009 with a slight uptick in 2010, due to the recession.  Less driving means fewer accidents, which means less insurance company purchases of totaled vehicles, especially if millions of teenagers can’t find work to pay for a car.  All of that may have bottomed out, but the recovery may well be very slow.

Here’s an industry that can claim that business is bad due to good weather.

It’s true that there is a lot more “stuff” under the hood these days that increase the cost of a repair, but late model “totaled” cars in the US are often shipped to another country with lower labor rates and repaired there.  It’s just our country’s wealth has made everything disposable here.

You give some thought to market size, as I also do.  My impression is that most older models will always go from the consumer to salvage yards/metal recyclers without CPRT being able to offer any advantage to the seller.  If I’m mistaken, then you can count all of the older/broken cars as a possible market.

I think that you need to be extremely careful about looking at previous performance or valuations of a company when the situation is no longer the same today.  The real value is always based on future results, not past victories.

As I recall, insiders own about 11% of CPRT and the rest is pretty much all wealth management funds, no retail investors or mutual funds.  I don’t think you can speculate on this in stock reports, but it would indicate to me that the current shareholders aren’t likely to suddenly bail on a market downturn.

You don’t mention that they do not pay a dividend, which in this case I think is extremely relevant.  My impression is that management is more concerned with the stock price and thus the value of their employee stock options.  (Oops! Can’t say that in a report either!)  They’re really a cash cow at this point and could be paying out a $0.75 dividend without any problem.

On that note, they just announced that they were going to borrow $400M and use it all to buy back stock at $38/sh.  That’s an interesting development.  If it all goes though as planned, that probably will increase the value of a single share by about $4 and reduce the value of the company by about $100M.  It also is a clue about their thoughts about further expansion in the next few years.

Well, I hope my comments and those from others on CAPS are of some help.  Feel free to reject any or all of mine as you see fit.  Best of luck.  RH

 

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#11) On January 05, 2011 at 2:14 PM, tekennedy (57.03) wrote:

Thanks for the input rhallbick.  I get what you're saying with it sounding a bit too positive, I'm adding a bit more counterpoints to it.  I'll likely also add more to the competition segment as well.

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