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WEX Benefits From Organic Growth and Strategic Buyouts

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In a year’s time, shares of WEX Inc. (WEX - Free Report) have gained 30.4%, outperforming the 18.2% rise of the industry it belongs to.


The company reported strong third-quarter 2018 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Adjusted earnings of $2.19 per share outpaced the consensus estimate by 7 cents and increased 53.1% year over year. Total revenues of $382.69 million beat the consensus mark by $7.3 million and increased 18.1% year over year.

The company has an impressive earnings surprise history, having outpaced estimates in each of the last four quarters. It delivered average four-quarter positive earnings surprise of 3.3%. Over the past 60 days, the Zacks Consensus Estimate for fourth-quarter earnings has been revised 1.9% upward.

What’s Driving WEX?

Solid Organic Growth

WEX’s top line continues to grow organically driven by its extensive network of fuel and service providers, transaction volume growth, product excellence, marketing capabilities, sales force productivity and other strategic revenue generation efforts. Organic revenue growth was 8.4% in the last reported quarter. Strategic acquisitions complement the company’s organic growth by contributing to revenues, adding differentiation to its products and service offerings and enhancing scalability. WEX remains highly optimistic about organic growth opportunities across each of its segments.

Increasing Operating Income: A Major Positive

WEX has been continually undertaking efforts to optimize its activities and cost structure, and capture new revenue generating opportunities across its businesses. We believe these efforts have helped WEX achieve operating income growth. In the third-quarter of 2018, operating income increased 58% year over year to $100.69 million. Operating income margin rose to 26.3% from 19.7% in the prior-year quarter. The better figures indicate management’s efficient execution in recent times.

Acquisitions: A Key Growth Catalyst

Acquisitions have been one of the key catalysts for WEX. On Oct 22, WEX announced a deal to acquire Noventis, an electronic payments network. The purchase of Noventis is expected to expand WEX’s corporate payments business.

In October 2017, WEX had purchased certain assets and assumed certain liabilities of AOC, a provider of commercial payments technology, to strengthen its technological capabilities. In 2016, the company acquired EFS, a provider of customized payment solutions for fleet and corporate customers to enhance its fleet solutions suite. In 2015, the company purchased Benaissance and acquired the remaining 49% ownership in UNIK S.A.

Apart from contributing to revenue growth, these buyouts have added differentiation to WEX’s products and services offerings, thereby enhancing scalability.

Zacks Rank & Other Stocks to Consider

Currently, WEX is a Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few other top-ranked stocks in the broader Business Services sector include Paychex, Inc. (PAYX - Free Report) , Genpact Limited (G - Free Report) and Automatic Data Processing Inc. (ADP - Free Report) , each carrying a Zacks Rank #2.

The long-term expected EPS (three to five years) growth rate for Paychex, Genpact and Automatic Data Processing is 8.5%, 10% and 12.5%, respectively.

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