Wex (WEX) Down 40.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Wex (WEX). Shares have lost about 40.8% 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 drivers.

WEX Beats Q4 Earnings Estimates, Misses Revenues

WEX reported mixed fourth-quarter 2019 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same.

Adjusted earnings of $2.61 per share beat the Zacks Consensus estimate by 2% and increased 24% year over year. The reported figure exceeded the midpoint ($2.56) of the company’s guidance of $2.51-$2.61.

Total revenues of $440 million missed the consensus mark by 3.6%. Nevertheless, the figure improved year over year on the back of growth in all segments. Revenues fell short of the midpoint of the guidance of $452-$462 million.

Revenues by Segment

Fleet Solutions revenues (59% of total revenues) increased 2.7% year over year to $260.8 million. The upside was driven by robust transaction volume growth and higher late fee and incremental revenues from EG fuel, partially offset by lower fuel prices, unfavorable FX headwinds and a softer market environment.

Average number of vehicles serviced was around 14.9 million, up 19% from the year-ago quarter’s figure. Total fuel transactions processed increased 12% from the year-ago quarter’s tally to 156 million. Payment processing transactions rose 9% to 126.7 million. U.S. retail fuel price declined 4.8% to $2.80 per gallon.

Travel and Corporate Solutions revenues (22%) of $95.7 million were up 22.7% year over year. The uptick can be attributed to a 17% year-over-year increase in purchase volume. The company witnessed strength in accounts payable products and contributions from the Noventis acquisition.

Health and Employee Benefit Solutions revenues (19%) of $83.5 million increased 69.1% year over year, driven by growth in U.S. healthcare business, with 18% organic growth and better-than-expected contributions from Discovery Benefits. The average number of Software-as-a-Service (SaaS) accounts in the United States rose 17% year over year to 13.4 million.

Operating Results

Adjusted operating income increased 24.6% from the prior-year quarter’s figure to $184.9 million. Adjusted operating income margin increased to 42% from 38.9% in the prior-year quarter.

Balance Sheet

WEX exited the quarter with cash and cash equivalents of $810.9 million compared with $531.4 million at the end of the prior quarter. Long-term debt was $2.7 billion, flat year over year.

Q1 Guidance

WEX expects revenues in the range of $445-$455 million. Adjusted earnings are expected in the range of $2.15-$2.25 per share. The company’s first-quarter guidance is based on an assumed average U.S. retail fuel price of $2.69 per gallon and fleet credit loss between 15 basis points (bps) and 20 bps.

2020 Outlook

The company expects revenues in the range of $1.86-$1.9 billion. Adjusted earnings are expected in the range of $10.15-$10.55 per share. The company’s full-year guidance is based on an assumed average U.S. retail fuel price of $2.7 per gallon and fleet credit loss ranging between 13 bps and 18 bps. The company also assumes around 44 million shares outstanding for the full year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.62% due to these changes.

VGM Scores

At this time, Wex has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. It's no surprise Wex has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.