A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
One such stock is FLEETCOR Technologies, Inc. (FLT - Free Report) , which has gained 35.1% so far this year, outperforming the 23.1% rally of the industry it belongs to and 14.9% rise of the Zacks S&P 500 composite.
It has an expected long-term (three to five years) earnings per share growth rate of 16.5%. Moreover, earnings are expected to register 10.3% growth in 2019 and 14.9% growth in 2020.
What are the Positives?
FLEETCOR’s top line continues to grow organically driven by increase in both volume and revenues per transaction in some of its payment programs. In 2018, solid organic growth was observed across the company’s major product categories. Organic revenue growth was 10%, 9% and 8% respectively in 2018, 2017 and 2016. For 2019, the company expects to register 9-11% organic growth on the back of continuous solid performance in its fuel card businesses and contributions from trucking business and growing local operations in North America.
Meanwhile, acquisitions have been contributing significantly to FLEETCOR’s top line. In 2018, the company witnessed $97 million of additional revenues from the acquisitions completed in 2017. In 2017, additional revenues of $212 million were generated from acquisitions completed in 2016 and 2017. FLEETCOR has been continuously acquiring and investing in companies both in the United States as well as internationally to expand customer base, headcount and operations and diversify its service offerings across industries. Since 2002, the company has acquired more than 75 companies and commercial account portfolios.
Effective management execution has helped FLEETCOR build cash, cash equivalents and restricted cash of approximately $1.35 billion as of Dec 31, 2018. The company continues to use excess cash to aggressively buy back shares. In 2018, the company repurchased almost 5 million shares for $958.7 million. Further, on Jan 23, 2019, the company’s board of directors approved an additional $500 million in share repurchases under its existing share repurchase program, thereby taking the total current repurchase authorization to $551 million.
We believe that this strong cash position will not only help FLEETCOR continue rewarding shareholders but also pursue growth initiatives (in the form of acquisitions and investments).
Despite significant growth prospects, FLEETCOR is not free from overhangs. The company is seeing higher interest expense due to increase in LIBOR rate and additional borrowings for shares repurchase and to fund Cambridge acquisition (completed in 2017). Higher interest expense is likely to weigh on the company’s bottom line. Moreover, FLEETCOR’s policy of acquiring a large number of companies could result in some integration risks. Nevertheless, we believe that favorable growth dynamics and a strong financial profile bode well for FLEETCOR.
Zacks Rank & Stocks to Consider
FLEETCOR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A few better-ranked stocks in the broader Zacks Business Services sector are Insperity (NSP - Free Report) , MAXIMUS (MMS - Free Report) and Automatic Data Processing (ADP - Free Report) . While Insperity sports a Zacks Rank #1, MAXIMUS and Automatic Data Processing carry a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Insperity, MAXIMUS and Automatic Data Processing is 18%, 10% and 13%, respectively.
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