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Here's Why WEX Deserves to be Retained in Your Portfolio

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WEX Inc.(WEX - Free Report) ) is benefiting from its reccurring revenue model, diverse earning engine and reliable cash flow model. The same was substantiated by the better-than-expected fourth-quarter earnings results of the company.

Adjusted earnings of $3.44 per share surpassed the Zacks Consensus Estimate by 7.2% and increased 33.3% year over year.

Total revenues of $618.6 million surpassed the consensus mark by 7.4% and increased 24.3% year over year, mainly driven by an increase in volumes from customer wins and renewals.

The company is leveraging the effect of organic growth guided by an extensive fuel network and service providers, transaction volume growth, product excellence, marketing capabilities, sales force productivity and other strategic revenue generation efforts.

The company is aided by fast-growing profitable and predictable revenue and earnings stream. More than 80% of the company’s revenues are recurring in nature. With the successful utilization of growth, cash generation ability and scalability to its advantage, the company is returning to its shareholders as well as investing in its long-term growth.

Product and service quality, and a deep understanding of customers’ operational needs have enabled WEX to achieve revenue stability with the help of long-standing strategic relationships, multi-year contracts and high contract renewal rates. WEX’s customer retention rate remains healthy, driven by strength in its private-label portfolios, and value-added product and service offerings.

Acquisitions have acted as a key growth catalyst for the company.  WEX has been actively acquiring and investing in businesses, both in the United States as well as internationally, to expand its product and service offerings, thereby contributing to revenue growth and enhancing scalability.

Let’s look at some other factors that make WEX a stock to be kept intact in portfolios.

Price Performance

WEX has outperformed the Zacks Financial Transaction Service industry in the past six months. The stock has risen 19.2% compared with the industry's 13% growth in the same time frame.

 

Earnings Expectations

Earnings growth and stock price gains often indicate a company’s prospects. For first-quarter 2023, WEX’s earnings are expected to register 11.1% growth on a year-over-year basis. For 2023 and 2024, the company’s earnings are expected to grow 2.2% and 14.7%, respectively, on a year-over-year basis.

The Zacks consensus for the company’s earnings is pegged at a loss of $3.2 for first-quarter 2023 and at $13.83 for the full year. Both estimates have been slightly revised upward in the past 60 days. The favorable estimate revision reflects brokers’ confidence in the stock.

Earnings Surprise History

WEX has an impressive earning surprise history having beaten the Zacks Consensus Estimate in all four trailing quarters. The average surprise is 6.1%.

Bullish Industry Rank

The industry to which WEX currently belongs has a Zacks Industry Rank of 96 (of 250 plus groups). Such a solid rank places the industry in the top 38% of the Zacks industries. Studies show that 50% of a stock price movement is directly tied to the performance of the industry group it belongs to.

In fact, a mediocre stock in a healthy group is likely to outperform a robust stock in a poor industry. Therefore, taking the industry’s performance into account becomes necessary.

WEX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Some Risks

WEX’s current ratio at the end of fourth-quarter 2022 was pegged at 1.08, lower than the current ratio of 1.21 reported at the end of the previous quarter. This indicates that the company may have problems meeting its short-term debt obligations.

Stocks to Consider

Investors interested in the broader Zacks Business Service sector may consider the following stocks:

ICF International, Inc.(ICFI - Free Report) is being aided by the strong government business, courtesy of improvement in the business development pipeline and win rate. In the fourth quarter of 2022, ICFI reported better-than-expected results. Quarterly earnings (excluding $1.09 from non-recurring items) came in at $1.56, beating the Zacks Consensus mark by 4.7% and increasing 31.1% from the year-ago reported figure. For first-quarter 2023, ICFI’s earnings are expected to register 1.5% growth on a year-over-year basis. For 2023, the company’s earnings are expected to grow 3.64% on a year-over-year basis.

The Zacks consensus for the company’s earnings is pegged at $1.33 for first-quarter 2023 which has not been revised in the past 60 days and $5.98 for the full year. This has been revised upward 2% in the past 60 days. The company currently sports a Zacks Rank of 1.

Omnicom Group Inc. (OMC - Free Report) ’sinternal development initiatives and shareholder-friendly policies ensure its long-term profitability. In the fourth quarter of 2022, OMC reported better-than-expected results. Earnings of $2.09 per share beat the consensus mark by 7.7% and increased 7.2% year over year, driven by a strong margin performance. For first-quarter 2023, OMC’s earnings are expected to be $1.39 which match the year-ago reported figure. The company’s earnings are expected to grow 3.17% on a year-over-year basis in 2023.

The Zacks consensus for the company’s earnings is pegged at $1.39 for first-quarter 2023 which has been revised downward by 2.1% in the past 60 days and $7.15 for the full year. This has been revised upward 13.7% in the past 60 days. The company currently sports a Zacks Rank of 1.


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