Yesterday (03/18/20) AM IAA reported Q4 results that beat on EBITDA ($99.4M vs Cons of $97.3) and EPS ($0.37 vs Cons of $0.34). While Q1 20 results QTD (2 weeks left) have been in-line with mgt’s plan, they withheld 2020 guidance due to the virus. IAA shares were -1% vs -5% for the SP500.
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Copart reported mostly in-line F2Q results on 2/19 after market with total revenue slightly below the street but services revenue beating consensus. EBIT slightly missed street estimates, with EPS missing by a penny. Shares were down 7% vs. flattish for the S&P 500.
KAR reported Q4 on 2/18 with a call on 2/19. KAR beat on revenue but missed on EBITDA. KAR introduced FY20 guidance that was below Cons on EBITDA. Shares were +4.9% vs flat S&P 500.
VVV reported 1Q20 on 2/3 after the close. Revenue was in-line vs our expectations, EPS beat vs us and Consensus. Core NA profitability was a standout with GP/gallon 20% above our estimates helped by improved premium mix and better SGA leverage, despite a seasonally light quarter, while Quick Lube profitability underwhelmed. VVV was +2.5% vs S&P +1.5%.
With concerns over the Coronavirus spreading, we think US Retailers will likely be viewed as near-term relative safe-haven stocks given limited direct exposure to China. However, should the virus spread into a pandemic, especially in China, we see a greater impact to US retailers from indirect supply chain exposure or US GDP growth.
To help gear up for 2020 we analyzed 2019 performance, identified 10 key themes into 2020, analyzed post Q3 earnings reaction, and analyzed the key issue facing each stock under coverage into 2020.
The timing of CPRT’s capex surge is bullish for industry growth and can likely be used as a risk factor for IAA bears to point to as a sign that CPRT is adding excess capacity under the premise of capturing more Geico business in the future. To provide some historical context, we show LTM capex against Yard additions, Indexed volume, and yard operation costs. While this could be a near-term margin pressure to CPRT as these yards are put into service, empirically the yard costs are more stable than Capex.
EPS of $0.35 beat Cons $0.33 but missed our $0.36 as higher revenue and gross profit, was only partially offset by higher SGA dollars. This was the best corporate call we’ve heard in a long time. IAA put to rest Geico concerns (at 30% share loss), added new disclosure to heighten transparency, affirmed going fully digital in 2H 2020, and sounded fired up about new technology and operational improvements. Shares were up 11%.
VVV held its FQ4 call this AM. EBITDA was 10.3% above Consensus. Quick Lubes growth decelerated to 12% y/y (from 16% for 9M’19). Adj. EPS of $0.40 beat our $0.34 (Consensus $0.33). VVV issued 2020 guidance with mid-point EBITDA ~1% above prior Consensus, which was disappointing likely on continued Quick Lubes decel, volume/mix headwinds in Core NA and a subpar International outlook. VVV was up 4% vs S&P flat.
KAR reported Q3 on 11/5 with a call on 11/6. KAR beat on revenue but missed significantly on EBITDA and lowered the full-year guide. However, KAR only modestly lowered the implied Q4 guide, which now looks very ambitious given there’s no clear visibility to a Q4 inflection. We cut est. 9% and cut/roll our PT to $26 for CY ‘20 (was $33 in ‘19). Shares were -18%.
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