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 by tough market conditions.
Here we discuss about FLEETCOR Technologies, Inc. (FLT - Free Report) , a financial transaction services provider, which has had an impressive run on the bourse on a year-to-date basis. Shares of FLEETCOR have surged 54.4% on a year-to-date basis compared with the 36.5% rally of the industry it belongs to and 12% rise of the Zacks S&P 500 composite.
The company has long-term expected earnings per share (three to five years) growth rate of 15.6%. Moreover, earnings are expected to register 11.3% growth in 2019 and 15.1% in 2020.
Factors Driving FLEETCOR
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 second-quarter 2019, organic revenue growth was 13%, driven by solid double-digit growth across the company’s product categories — fuel, corporate payments, tolls and lodging. Its fuel card business was up 9%, corporate payments increased 26%, toll business grew 17% and lodging business increased 13% organically. Organic revenue growth was 10%, 9% and 8% respectively in 2018, 2017 and 2016. For 2019, the company continues to expect 9-11% organic growth.
FLEETCOR has been active on the acquisition front. Since 2002, the company has acquired more than 75 companies and commercial account portfolios. The company 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. In 2019 so far, FLEETCOR completed the purchase of SOLE Financial and Nvoicepay. While SOLE Financial is expected to extend FLEETCOR’s payroll and card portfolios and expand its addressable market, thus enabling it better serve small and medium-sized as well as larger businesses, Nvoicepay is expected to expand FLEETCOR’s corporate payments business with full disbursement accounts payable cloud platform.
Effective execution led to cash, cash equivalents, and restricted cash of $1.49 billion as of Jun 30, 2019, with no long-term debt to clear off. This significant amount of cash provides FLEETCOR the flexibility to pursue strategic acquisitions and other related investments.
Cash-rich companies not only guarantee protection but are also likely to reward shareholders from their deep cash balances. In the first half of 2019, FLEETCOR repurchased shares worth $4.02 million.In 2018, 2017 and 2016, the company repurchased shares worth $958.7 million, $402.4 million and $187.7 million, respectively. These shareholder-friendly initiatives not only boost investors’ confidence but also positively impact earnings.
In spite of significant growth prospects, FLEETCOR is not free from headwinds. Higher interest expense stemming from increase in LIBOR rate and additional borrowings for shares repurchase and to fund Cambridge acquisition (completed in 2017) have been weighing on the company’s earnings. The company’s fuel card, workforce payment solutions and gift card businesses are affected by seasonality. Global presence makes it vulnerable to the risks associated with foreign currency exchange rate fluctuations. FLEETCOR’s policy of acquiring a large number of companies results in some integration risk.
Zacks Rank & Stocks to Consider
FLEETCOR Technologies currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other better-ranked stocks in the broader Zacks Business Services sector are Visa (V - Free Report) , Huron Consulting (HURN - Free Report) and Accenture (ACN - Free Report) , each carrying a Zacks Rank #2. Long-term expected EPS (three to five years) growth rate for Visa, Huron Consulting and Accenture is 16.5%, 13.5% and 10.3%, respectively.
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