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Why Is Wex (WEX) Down 5.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Wex (WEX - Free Report) . Shares have lost about 5.8% 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 Beats on Q1 Earnings and Revenues, Raises 2019 View

WEX reported better-than-expected first-quarter 2019 results.

Adjusted earnings of $1.72 per share outpaced the consensus estimate by 3 cents but declined year over year. The reported figure exceeded the company’s guided range of $1.64-$1.70.

Total revenues of $381.9 million beat the consensus mark by $1.5 million and improved year over year, driven by strong performance of Travel and Corporate Solutions and Health and Employee Benefit Solutions segments. Revenues exceeded the guided range of $375-$380 million.

Revenues by Segment

Fleet Solutions revenues (61% of total revenues) increased 1% year over year to $232.8 million due to higher volume growth and increased late fees, partially offset by fewer business sales and lower fuel prices.

Average number of vehicles serviced was around 13.1 million, up 14% from the year-ago quarter. Total fuel transactions processed increased 7% from the year-ago quarter to 140.5 million. Payment processing transactions increased 5% to 115.4 million. U.S. retail fuel price increased 4% to $2.67 per gallon.

Travel and Corporate Solutions revenues (21%) of $81.6 million were up 22% year over year, driven by strong performance in the international markets and Corporate Payments, and contributions from the Noventis acquisition. Purchase volume increased 6% year over year to $8.4 billion.

Health and Employee Benefit Solutions revenues (18%) of $67.4 million increased 19% year over year, driven by strong performance of the company’s U.S. healthcare business (revenues grew 31% year over year). Acquisition of Discovery Benefits added $8 million in revenue. The average number of Software-as-a-Service (SaaS) accounts in the United States grew 18% year over year to 12.7 million.

Operating Results

Operating income decreased 17.8% from the prior-year quarter to $68.9 million. Operating income margin declined to 18.1% from 23.7% in the prior-year quarter.

Balance Sheet

WEX exited first-quarter 2019 with cash and cash equivalents of $387.3 million compared with $541.5 million at the end of the prior quarter. Long-term debt was $2.8 billion compared with $2.1 billion at the end of the prior quarter.

Q2 Guidance

WEX expects revenues in the range of $438-$443 million. Adjusted earnings are expected in the range of $2.22-$2.28 per share.

The company’s first-quarter guidance is based on an assumed average U.S. retail fuel price of $2.85 per gallon and fleet credit loss ranging between 11-16 basis points.

2019 Guidance

WEX raised its full-year 2019 guidance. The company expects revenues in the range of $1.705 billion to $1.745 billion, compared with the previous guidance of $1.680-$1.720 billion. Adjusted earnings are expected in the range of $9.10 to $9.50 per share, compared with the previous expectation of $8.80-$9.20 per share.

The company’s full-year guidance is based on an assumed average U.S. retail fuel price of $2.78 per gallon and fleet credit loss ranging between 13-18 basis points. The company also assumes almost 43.8 million shares outstanding for the second quarter and full year.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Wex has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

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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