Wex (WEX) Up 0.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Wex (WEX). Shares have added about 0.8% 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 drivers.

WEX Tops Q2 Earnings Estimates, Ups 2019 Revenue View

WEX reported better-than-expected second-quarter 2019 results. Adjusted earnings of $2.28 per share outpaced the consensus estimate by 2 cents and increased year over year. The reported figure exceeded the midpoint of the company’s guided range of $2.22-$2.28 per share. Total revenues of $441.8 million beat the consensus mark by $2 million and improved year over year, driven by double digit growth in all segments. Revenues exceeded the midpoint of the guided range of $438-$443 million.

Revenues by Segment

Fleet Solutions revenues (60% of total revenues) increased 11% year over year to $267.3 million due to higher volume growth and increased late fees, partially offset by lower fuel prices.

Average number of vehicles serviced was around 13.9 million, up 18% from the year-ago quarter. Total fuel transactions processed increased 10% from the year-ago quarter to 153.7 million. Payment processing transactions rose 10% to 128 million. U.S. retail fuel price declined 4% to $2.91 per gallon.

Travel and Corporate Solutions revenues (21%) of $91.4 million were up 21% year over year, driven by strong performance in Corporate Payments business, international markets and contributions from the Noventis acquisition. Purchase volume increased 13% year over year to $10 billion.

Health and Employee Benefit Solutions revenues (19%) of $83.1 million increased 55% year over year, driven by strong performance of the company’s U.S. healthcare business (revenues grew 72% year over year). Acquisition of Discovery Benefits added $25 million in revenue. The average number of Software-as-a-Service (SaaS) accounts in the United States grew 17% year over year to 12.6 million.

Operating Results

Operating income decreased 6% from the prior-year quarter to $94.7 million. Operating income margin declined to 21.4% from 27.1% in the prior-year quarter.

Balance Sheet

WEX exited the second quarter with cash and cash equivalents of $768.4 million compared with $387.3 million at the end of the prior quarter. Long-term debt was $2.8 billion, roughly flat with the prior quarter figure.

Q3 Guidance

WEX expects revenues in the range of $455-$465 million. Adjusted earnings are expected in the range of $2.52-$2.62 per share. The company’s third-quarter guidance is based on an assumed average U.S. retail fuel price of $2.72 per gallon and fleet credit loss ranging between 13-18 basis points.

2019 Guidance

WEX updated its full-year 2019 guidance. The company now expects revenues in the range of $1.720 billion to $1.750 billion, compared with the previous guidance of $1.705-$1.745 billion. Adjusted earnings are expected in the range of $9.10 to $9.35 per share, compared with the previous expectation of $9.10-$9.50 per share. The company’s full-year guidance is based on an assumed average U.S. retail fuel price of $2.72 per gallon and fleet credit loss ranging between 13-18 basis points. The company also assumes around 43.8 million shares outstanding for the third quarter and full year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.29% due to these changes.

VGM Scores

At this time, Wex has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. 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

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 #3 (Hold). We expect an in-line return from the stock in the next few months.

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