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Here's Why You Should Retain WEX Stock in Your Portfolio

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WEX Inc.’s (WEX - Free Report) shares have gained a massive 43.4% over the past three months, significantly outperforming the 5.3% rally of the industry it belongs to.

The company has an expected long-term earnings per share (three to five years) growth rate of 10.7%. Earnings for 2021 are anticipated to grow 30.9%.

What’s Behind the Rally?

WEX remains focused on long-term organic growth through prudent investments in sales and marketing, and technology. While sales and marketing are helping the company with client attraction and retention, technology investments ensure that employee productivity remains healthy.

WEX has accelerated its risk mitigation efforts in response to the pandemic-induced business disruptions. The company has trimmed down available credit lines for thousands of fleet and travel customers and boosted collections operations. It has shed-off its Brazil commercial operations so as to pass on future investments to faster-growing areas. WEX’s cost containment and capital expenditure reduction efforts initiated earlier this year have already started benefiting its bottom line.

Some Risks

WEX’s total debt to capital ratio of 0.57 was higher than the industry's 0.39 at the end of third-quarter 2020. Higher debt to capitalization ratio indicates that the proportion of debt to finance the company’s assets is on the rise and so is the risk of insolvency.

Further, cash and cash equivalent balance of $1.71 billion at the end of the quarter was well below the long-term debt level of $2.88 billion underscoring that the company does not have enough cash to meet this debt burden. However, the cash level can meet the short-term debt of $127 million.

Zacks Rank and Key Picks

WEX currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector include Republic Services (RSG - Free Report) , Gartner, Inc. (IT - Free Report) and NV5 Global (NVEE - Free Report) . While Gartner and NV5 Global carry a Zacks Rank #2 (Buy), Republic Services sports a Zacks #1 Rank (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term (three to five years) expected earnings per share growth rate for Republic Services, Gartner and NV5 Global is 9.4%, 13.5% and 16.8%, respectively.

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Republic Services, Inc. (RSG) - free report >>

Gartner, Inc. (IT) - free report >>

WEX Inc. (WEX) - free report >>

NV5 Global, Inc. (NVEE) - free report >>