A comparison of LKQ, Copart and Schnitzer Steel Using 7 Fat Cows Checklist
LKQ, Copart and Schnitzer Steel (owner of 53 Pick-n-Pull salvage auto parts outlets) are in the same industry, basically doing the same thing, with minor differences.
LKQ (LKQ) buys old and wrecked cars from car owners and insurance companies (3 to 9 years old vehicles), dismantle them, some of which will be sold as used parts, and some as scrap mettle.
Copart (CPRT) buys damaged cars mainly from insurance companies and sell them to both foreign and national entities via an online auction.
Schnitzer Steel (SCHN) generates most of its revenue from steel and recycle scrap metal, but has a decent business selling used auto parts.
Here is a comparison of their financial performance using our checklist.
| # | VARIABLES | LKQ | CPRT | SCHN |
| 1 | Working Capital Ratio (current assets / current liability) > 2 | 3.1 | 1.91 | 2.82 |
| 2 | Positive Net Tangle Assets (total assets – goodwill – intangibles – total liability) | 698M | 453M | 339m |
| 3 | Price / book (price per share / book per share) < 1.5 | 12.6 | 9.2 | 1.26 |
| 4 | Price / Earnings (price per share / earnings or net income per share ) < 20 | 21 | 22.69 | N/A |
| 5 | Positive free cash flow in the last (3) years (operational profit – capital expenditure) | 309M | 147M | 54.5M |
| 6 | Free Cash flow yield (free cash flow / market capitalization) > 15% | 3.50% | 3.00% | 12.60% |
| 7 | Return on assets (net income / total assets) > 10% | 7.40% | 16.50% | N/A |
| 8 | Interest coverage (Income before interest and taxes EBIT / interest payments) > 7 | 12.17 | 19 | N/A |
| 9 | Debt to Free Cash Flow (long term liability / free cash flow) < 5 | 4.9 | 3.9 | 4.2 |
| 10 | Debt to Equity (long term liability / shareholders equity) < 50% | 49.00% | 79.00% | 42.50% |
| 11 | Dividend yield > 2% | N/A | N/A | 4.36 |
| 12 | ROIC (net income – dividends / total capital) > 15% | 7.40% | N/A | |
| 13 | Gross margin increase for the last three years | N/A | +200 bp | +90 bp |
From the table above LKQ’s BIG positives are its 3.1 working capital ratio, its interest coverage and debt to equity ratio.
Copart’s BIG positives are its return on assets ratio, interest coverage, debt to free cash flow ratio, gross margin increase and ROIC
Schnitzer Steel’s advantages are its working capital ratio, is price to book ratio, it free cash flow yield, its debt to equity ratio and its dividend yield.
From a conservative investor standpoint, SCHN has more positives than its peers, except for the fact that steel prices are at all time low and the company is not generating a profit at this time. With a decent profit and $16.24 stock price, it would be a BUY