It has been about a month since the last earnings report for Wex (WEX). Shares have added about 5.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Wex due for a pullback? 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 Earnings and Revenue Surpass Q4 Estimates, Rise Y/Y
WEX reported strong fourth-quarter 2018 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings of $2.11 per share outpaced the consensus estimate by 2 cents and increased year over year. The reported figure exceeded the midpoint of the company guided range of $2.05-$2.15. The bottom line benefited from organic growth, favorable macroeconomic conditions and a lower tax rate.
Total revenues of $381.2 million beat the consensus mark by $7.7 million and increased 14.9% year over year. Higher fuel prices contributed $13.5 million to revenues. Revenues exceeded the guided range of $370-$380 million.
The fourth quarter marked the tenth consecutive quarter of double-digit top-line growth, driven by strong performance of the company’s Fleet Solutions and Travel and Corporate Solutions segments and its U.S. healthcare business.
Revenues by Segment
Fleet Solutions revenues (67% of total revenues) increased 15% year over year to $253.7 million due tohigher volume growth, increased late fees and favorable macroeconomic tailwinds including higher fuel prices.
Average number of vehicles serviced was around 12.5 million, up 11% from the year-ago quarter. Total fuel transactions processed increased 7% from the year-ago quarter to 139.5 million. Payment processing transactions increased 7% to 115.9 million. U.S. retail fuel price increased 9.7% to $2.94 per gallon.
Travel and Corporate Solutions revenues (20%) of $77.9 million climbed 29% year over year on the back of strong international performance (driven by Europe, Brazil and Australia) and travel business growth (of 13%) and corporate payments growth (almost more than 100%) in the United States. Purchase volume increased 11% year over year to $8.2 billion.
Health and Employee Benefit Solutions revenues (13%) of $49.4 million declined 4% year over year due to low bound Brazilian benefits business. However, the company’s U.S. healthcare business revenues increased 12% in the reported quarter.
The average number of Software-as-a-Service (SaaS) accounts in the United States grew 17% year over year to 11.5 million.
Operating income increased 27.7% from the prior-year quarter to $93.7 million. Operating income margin rose to 24.6% from 22.2% in the prior-year quarter.
WEX exited fourth-quarter 2018 with cash and cash equivalents of $541.49 million compared with $533.36 million at the end of the prior quarter. Long-term debt was $2.13 billion compared with $2.14 billion at the end of the prior quarter.
For first-quarter 2019, WEX expects revenues in the range of $375-$380 million. Adjusted earnings are expected in the range of $1.64-$1.70 per share. The company’s first-quarter guidance is based on an assumed average U.S. retail fuel price of $2.60 per gallon and fleet credit loss ranging between 13-18 basis points.
Full Year 2019
For full year 2019, the company expects revenues in the range of $1.68-$1.72 billion. Adjusted earnings are expected in the range 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 $2.63 per gallon and fleet credit loss ranging between 13-18 basis points. The company also assumes almost 43.9 million shares outstanding. Adjusted net income tax rate is expected to be between 24.5% and 26%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Wex has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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