XII
Detailed Valuation Scenarios
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VALUATION SCENARIOS - DISCOUNTED CASH FLOW (DCF) ANALYSIS
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📊 LLM-DETERMINED DCF PARAMETERS FOR CPRT
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Copart is a duopoly online vehicle auction platform (with IAA/RB Global) benefiting from secular tailwinds in rising total-loss rates, vehicle complexity, and international expansion. The business has exceptional unit economics — 36.5% operating margins, zero debt, $2B cash — and genuine network effects with insurance company switching costs. Forward FCF growth should moderate from the 16% historical CAGR as the $4.6B revenue base grows, but structural tailwinds and pricing power support above-average growth. WACC reflects the exceptionally low financial risk and recession-resistant demand profile.
Scenario Parameters (LLM-selected based on fundamental analysis):
🔻 Bear: 5.0% growth, 10.0% WACC, 1.5% terminal
→ Insurance company fee pushback compresses margins, international expansion stalls, and a prolonged recession reduces vehicle miles traveled and accident frequency. Total loss rates plateau as OEMs improve repairability. FCF growth slows to roughly GDP-plus as the easy gains from market share and pricing power are exhausted.
⚖️ Base: 9.0% growth, 9.0% WACC, 2.0% terminal
→ Continued secular increase in total-loss rates driven by vehicle complexity (EVs, ADAS sensors) and rising repair costs, moderate international expansion into Europe and Middle East, and steady duopoly pricing power support high-single-digit FCF growth. Margin expansion slows but operating leverage on land-heavy infrastructure already in place sustains conversion rates above 75%.
🔺 Bull: 12.0% growth, 8.5% WACC, 2.5% terminal
→ EV complexity accelerates total-loss rates from ~20% to 30%+ of claims, climate-driven catastrophe events increase salvage volumes structurally, international markets (currently ~20% of revenue) grow to 30-35%, and Copart's marketplace expands into adjacent verticals (dealer services, fleet management). The duopoly pricing environment allows margin expansion toward 40%+ operating margins.
Base FCF: Calculated FCF (OCF - CapEx) of $1.23B is the appropriate measure for this non-financial business and closely matches reported FCF of $1.21B. The standard FCF trajectory ($0.84B → $0.85B → $0.96B → $1.23B over 2022-2025) shows clean, consistent growth without anomalies. The reported FCF had a -$0.53B outlier in 2023 due to short-term investment purchases, confirming OCF-CapEx is the more reliable series.
Stock: CPRT
Current Price: $33.39
Shares Outstanding: 0.97B (966,936,214 shares)
Base Year FCF (FY 2025): $1.2B (from financial statements)
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BEAR CASE (Probability: 25%)
Conservative: Below-trend growth, elevated risk premium, modest recession impact
ASSUMPTIONS:
• FCF Growth Rate (Years 1-10): 5.0%
• Discount Rate (WACC): 10.0%
• Terminal Growth Rate: 1.5%
10-YEAR FCF PROJECTION:
Year FCF ($M) PV Factor PV of FCF ($M)
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1 $1,272,917,100 0.9091 $1,157,197,364
2 $1,336,562,955 0.8264 $1,104,597,483
3 $1,403,391,103 0.7513 $1,054,388,507
4 $1,473,560,658 0.6830 $1,006,461,757
5 $1,547,238,691 0.6209 $ 960,713,495
6 $1,624,600,625 0.5645 $ 917,044,700
7 $1,705,830,657 0.5132 $ 875,360,850
8 $1,791,122,189 0.4665 $ 835,571,720
9 $1,880,678,299 0.4241 $ 797,591,187
10 $1,974,712,214 0.3855 $ 761,337,043
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Total PV of 10-Year FCF: $9,470,264,105
TERMINAL VALUE:
• Year 11 FCF: $2,004,332,897
• Terminal Value: $23,580,387,024
• PV of Terminal Value: $9,091,259,979
VALUATION SUMMARY:
• Enterprise Value: $18.6B
• Less: Total Debt: $0.0B
• Plus: Cash & Equivalents: $2.0B
• Equity Value: $20.6B
• Shares Outstanding: 0.97B
• Intrinsic Value per Share: $21.27
• Current Price: $33.39
• Upside/Downside: -36.3%
• Margin of Safety: -57.0%
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BASE CASE (Probability: 50%)
Balanced: Sustainable growth trajectory, market-appropriate discount rate, realistic perpetuity assumptions
ASSUMPTIONS:
• FCF Growth Rate (Years 1-10): 9.0%
• Discount Rate (WACC): 9.0%
• Terminal Growth Rate: 2.0%
10-YEAR FCF PROJECTION:
Year FCF ($M) PV Factor PV of FCF ($M)
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1 $1,321,409,180 0.9174 $1,212,302,000
2 $1,440,336,006 0.8417 $1,212,302,000
3 $1,569,966,247 0.7722 $1,212,302,000
4 $1,711,263,209 0.7084 $1,212,302,000
5 $1,865,276,898 0.6499 $1,212,302,000
6 $2,033,151,819 0.5963 $1,212,302,000
7 $2,216,135,482 0.5470 $1,212,302,000
8 $2,415,587,676 0.5019 $1,212,302,000
9 $2,632,990,566 0.4604 $1,212,302,000
10 $2,869,959,717 0.4224 $1,212,302,000
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Total PV of 10-Year FCF: $12,123,020,000
TERMINAL VALUE:
• Year 11 FCF: $2,927,358,912
• Terminal Value: $41,819,413,025
• PV of Terminal Value: $17,664,972,000
VALUATION SUMMARY:
• Enterprise Value: $29.8B
• Less: Total Debt: $0.0B
• Plus: Cash & Equivalents: $2.0B
• Equity Value: $31.8B
• Shares Outstanding: 0.97B
• Intrinsic Value per Share: $32.88
• Current Price: $33.39
• Upside/Downside: -1.5%
• Margin of Safety: -1.5%
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BULL CASE (Probability: 25%)
Optimistic: Strong execution, market share gains, operating leverage, sustained competitive advantages
ASSUMPTIONS:
• FCF Growth Rate (Years 1-10): 12.0%
• Discount Rate (WACC): 8.5%
• Terminal Growth Rate: 2.5%
10-YEAR FCF PROJECTION:
Year FCF ($M) PV Factor PV of FCF ($M)
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1 $1,357,778,240 0.9217 $1,251,408,516
2 $1,520,711,629 0.8495 $1,291,776,533
3 $1,703,197,024 0.7829 $1,333,446,744
4 $1,907,580,667 0.7216 $1,376,461,155
5 $2,136,490,347 0.6650 $1,420,863,127
6 $2,392,869,189 0.6129 $1,466,697,422
7 $2,680,013,492 0.5649 $1,514,010,242
8 $3,001,615,111 0.5207 $1,562,849,282
9 $3,361,808,924 0.4799 $1,613,263,775
10 $3,765,225,995 0.4423 $1,665,304,542
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Total PV of 10-Year FCF: $14,496,081,336
TERMINAL VALUE:
• Year 11 FCF: $3,859,356,645
• Terminal Value: $64,322,610,742
• PV of Terminal Value: $28,448,952,588
VALUATION SUMMARY:
• Enterprise Value: $42.9B
• Less: Total Debt: $0.0B
• Plus: Cash & Equivalents: $2.0B
• Equity Value: $45.0B
• Shares Outstanding: 0.97B
• Intrinsic Value per Share: $46.49
• Current Price: $33.39
• Upside/Downside: +39.2%
• Margin of Safety: 28.2%
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SENSITIVITY ANALYSIS - Intrinsic Value per Share
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How intrinsic value changes with different growth and discount rates:
Growth → 3% 5% 8% 10% 12% 15%
WACC ↓ ------------------------------------------------------------------
8% $ 26↓ $ 30 $ 38 $ 44↑ $ 51↑ $ 64↑
9% $ 23↓ $ 26↓ $ 32 $ 37 $ 43 $ 53↑
10% $ 20↓ $ 23↓ $ 28↓ $ 32 $ 36 $ 45↑
11% $ 18↓ $ 20↓ $ 24↓ $ 28↓ $ 32 $ 39
12% $ 16↓ $ 18↓ $ 22↓ $ 25↓ $ 28↓ $ 34
Current Price: $33.39
Base FCF: $1.2B
Terminal Growth: 2.5% (constant)
Legend: ↑ = 30%+ upside | ↓ = 10%+ downside
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REVERSE DCF — WHAT IS THE MARKET PRICING IN?
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Using IDENTICAL assumptions as Base Case DCF:
• WACC (Discount Rate): 9.0%
• Terminal Growth Rate: 2.0%
• Base FCF: $1.2B
• Current Price: $33.39
→ Market-Implied FCF Growth Rate: 9.2%
→ Base Case uses: 9.0% growth → $32.88/share
📊 Market is pricing in HIGHER growth (9.2%) than our Base Case (9.0%)
→ Market expects more growth than our analysis supports — potential downside risk
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PROBABILITY-WEIGHTED VALUATION
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Bear Case (21.27) × 25% = $5.32
Base Case (32.88) × 50% = $16.44
Bull Case (46.49) × 25% = $11.62
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Weighted Average Intrinsic Value: $33.38
Current Price: $33.39
Upside/Downside: -0.0%
Margin of Safety: -0.0%
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