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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 58.8% over the past six months, significantly outperforming the 11.4% rally of the industry it belongs to.

The company has an expected long-term earnings per share (three to five years) growth rate of 7.2%. Earnings for 2021 and 2022 are anticipated to grow 35.6% and 31.5%, respectively.

Factors Supporting the Rally

Acquisitions have acted as a key growth catalyst for WEX.  The company has been actively acquiring and investing in companies, both in the United States as well as internationally, to expand its product and service offerings, thereby contributing to revenue growth and enhancing scalability. The 2019 acquisition of Go Fuel Card has expanded the company’s Fleet business throughout EG locations in the United States, Europe and Australia. Another acquisition, Discovery Benefits, has boosted its position as a technology platform in the healthcare space and enhanced its employee benefits platform. The Noventis buyout has expanded WEX’s corporate payments business.

WEX’s Health and Employee Benefit Solutions business has been performing extremely well on the back of strength in account servicing and payment processing. Revenues increased 6.3% year over year to $88.9 million in the fourth quarter of 2020.

Some Risks

WEX’s total-debt-to-total-capital ratio of 0.60 at the end of fourth-quarter 2020 was higher than the industry's 0.38 and the previous quarter’s 0.58. 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 $1.37 billion at the end of the quarter was well below the long-term debt level of $2.87 billion, underscoring that the company doesn’t have enough cash to meet this debt burden. However, the cash level was enough to meet the short-term debt of $153 million.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the broader Zacks Business Services sector are The Interpublic Group of Companies (IPG - Free Report) , Cross Country Healthcare (CCRN - Free Report) and Charles River Associates (CRAI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected earnings per share (three to five years) growth rate for Interpublic, Cross Country Healthcare and Charles River is pegged at 2.4%, 12% and 13%, respectively.

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