Why Copart Shares Burned Rubber

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of online auction and vehicle marketing service company Copart popped as much as 11% after hedge fund Jana Partners, run by Barry Rosenstein, announced it had purchased shares of the company.

So what: It wasn't so much the purchase of Copart shares by Jana itself that sent shares screaming higher but the reasoning behind the purchase. According to a report from Bloomberg taken from a letter sent by Jana to shareholders, Jana sees considerable value to be unlocked if Copart were to convert to a real estate investment trust. The letter also notes that much of Copart's earnings could be classified as qualifying real estate income if it made the switch.


Now what: Jana's position is clearly exciting investors, as REITs are required to pay back at least 90% of their profits to shareholders in the form of a dividend in return for favorable tax status. Based on Copart's projected 2013 EPS, a REIT conversion would give the company a yield of 4% or possibly even higher. Although the idea sounds great on paper, it can take years to get approved for the conversion, and right now this is mere speculation on Jana's part. With auto sales slowing and Copart now at 20 times forward earnings, I'd personally consider driving off the lot.

Craving more input? Start by adding Copart to your free and personalized Watchlist so you can keep up on the latest news with the company.

Craving solid dividends?
If dividends are your thing, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here to discover the winners we've picked.

The article Why Copart Shares Burned Rubber originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Motley Fool newsletter services have recommended buying shares of Copart. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum