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Wex (WEX) Down 11% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Wex (WEX - Free Report) . Shares have lost about 11% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Wex due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

WEX Q3 Earnings, Revenues Surpass Estimates, 2018 View Up

WEX 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. The reported figure exceeded the company’s guided range of $2.03-$2.13.

Total revenues of $382.69 million beat the consensus mark by $7.3 million and increased 18.1% year over year. Higher fuel prices contributed $17.8 million to revenues. Revenues exceeded the guided range of $363-$373 million. Organic revenue growth was 8.4% in the quarter, driven by solid volume gains.

This marks the ninth consecutive quarter of double-digit top-line growth, driven by strong performance in the company’s Fleet Solutions and Travel and Corporate Solutions segments and its growing U.S. healthcare business. Solid execution and favorable macroeconomic conditions acted as other growth catalysts in the quarter.

Quarterly results benefited from strong performance across the company’s core businesses, healthy volumes, solid international growth and new business wins.

Revenues by Segment

Fleet Solutions revenues (65% of total revenues) increased 17.7% year over year to $249.61 million due to higher volume growth, increased late fees and strong macroeconomic tailwinds.

Average number of vehicles serviced was around 11.7 million, up 6% from the year-ago quarter. Total fuel transactions processed increased 7% from the year-ago quarter to 141.7 million. Payment processing transactions increased 7% to 117.7 million. U.S. retail fuel price increased 22% to $3.06 per gallon.

Travel and Corporate Solutions revenues (22%) of $82.81 million climbed 35.7% year over year on the back of strong international performance (especially in Asia and Brazil), corporate payments growth (almost 30%) and contributions from the AOC acquisition. Purchase volume increased 11% year over year to $9.6 billion.

Health and Employee Benefit Solutions revenues (13%) of $50.27 million declined 1.2% year over year on the back of macroeconomic headwinds in Brazil. However, the company’s U.S. healthcare business is expanding and increased revenues by 13% in the reported quarter.

The average number of Software-as-a-Service (SaaS) accounts in the United States grew 16% year over year to 11.1 million, reflecting solid enrollment and the Bank of America account win.

Operating Results

Operating income increased 58% from the prior-year quarter to $100.69 million. Operating income margin rose to 26.3% from 19.7% in the prior-year quarter.

Balance Sheet

WEX exited third-quarter 2018 with cash and cash equivalents of $533.36 million compared with $310.78 million at the end of the prior quarter. Long-term debt was $2.14 billion compared with $2.13 billion at the end of the prior quarter.

Guidance

Fourth-Quarter

WEX provided fourth-quarter 2018 guidance for revenues and adjusted earnings per share. The company expects revenues in the range of $370-$380 million. Adjusted earnings are expected in the range of $2.05-$2.15 per share.

The company’s fourth-quarter guidance is based on an assumed average U.S. retail fuel price of $2.85 per gallon and fleet credit loss ranging between 12-17 basis points.

Full Year

For 2018, WEX raised the guidance range for both revenues and adjusted earnings per share. The company now expects revenues in the range of $1.480-$1.490 billion while the previously guided range was $1.445-$1.475 billion.  Adjusted earnings per share are now expected in the range of $8.13-$8.23 compared with the previously guided range of $7.90-$8.15.

The company’s full-year guidance is based on an assumed average U.S. retail fuel price of $2.89 per gallon and fleet credit loss in the range of 12-13 basis points. Adjusted net income tax rate is expected to be between 25% and 26% compared with 25.5% and 26.5% guided earlier.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Wex has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Wex has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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