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 an expected long-term (three to five years) earnings per share growth rate of 15.9%. Moreover, earnings are expected to register 13.8% growth in 2020 and 15.1% in 2021.
Factors Driving FLEETCOR
FLEETCOR’s top line continues to grow organically driven by increase in both volume and revenues per transaction in certain of its payment programs. The company continues to witness solid organic revenue growth, driven by robust double-digit growth across its product categories – fuel, corporate payments, tolls and lodging. Notably, organic revenue growth was 11%, 10%, 9% and 8% respectively in 2019, 2018, 2017 and 2016. For 2020, the company continues to expect 9-11% organic growth.
Acquisitions are contributing significantly to FLEETCOR’s top line. In 2019, the company acquired Nvoicepay, SOLE Financial, Travelliance and a tuck–in acquisition in its lodging business. While Nvoicepay should expand FLEETCOR’s corporate payments business with full disbursement accounts payable cloud platform, 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. Travelliance is expected to expand its lodging business across new international markets and the tuck–in acquisition will expand its presence into the airline segment and add international hotel coverage and capabilities. Notably, during 2019, the company witnessed $40 million of additional revenues from acquisitions completed in the year.
Effective management execution has helped the company build cash, cash equivalents and restricted cash of $1.68 billion, with no long-term debt to clear-off as of Dec 31, 2019. 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 2019, 2018 and 2017, the company had repurchased shares worth $694.9 million, $958.7 million and $402.4 million, respectively.
Despite the aforementioned positives, the company faces its share of headwinds. FLEETCOR continues to witness higher interest expense due to increase in LIBOR rate and additional borrowings for shares repurchase and to fund Cambridge acquisition (completed in 2017). During 2019, interest expense of $150.05 million increased 8.3% year over year. The same rose 29.3% year over year in 2018. For 2020, the company expects interest expense of $130-$140 million. This is likely to keep the bottom line under pressure going forward.
The company’s fuel card, workforce payment solutions and gift card businesses are affected by seasonality. Vast global presence makes FLEETCOR vulnerable to the risks associated with foreign currency exchange rate fluctuations. Multiple acquisitions result in some integration risk.
Zacks Rank & Stocks to Consider
Currently, FLEETCOR carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are Omnicom (OMC - Free Report) , TransUnion (TRU - Free Report) and Genpact (G - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term expected EPS (three to five years) growth rate for Omnicom, TransUnion and Genpact is 5.6%, 12.8% and 13.9%, respectively.
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