FleetCor Technologies (FLT) operates a unique business that spans several industries; the firm helps companies manage all non-payroll spending on one platform, explains Doug Gerlach, editor of SmallCap Informer.
Its specialty is travel expense management, where employees use fuel cards or other payment methods to cover costs of fuel, food, tolls, lodging, maintenance, and other expenses.
Transaction data is transmitted to a customer’s company headquarters, where management can monitor and manage the expenses. Fleetcor is able to negotiate fleet discounts that help companies reduce costs, as well.
Since 2012, sales have grown annually at an average of 16.1%, with EPS just ahead at an annual rate of 16.9%. Revenues and earnings both dipped in 2020 during the pandemic, but rebounded in 2021 to greater than pre-pandemic levels.
Revenue increased 18.2% in the third quarter of 2022 over Q3 2021, reaching $893 million. EPS increased 17.5% to $3.29. Management attributed the gains to organic growth.
FleetCor’s high customer retention is key to its organic growth. With annual revenue retention greater than 90%, the company is able to attract new customers faster than it loses customers, leading to typical organic revenue growth greater than 10% a year.
In September 2022, FleetCor acquired Plugsurfing, a U.K.-based provider of electric vehicle charging stations with 150,00 active customers and 300,000 charge points in Europe (80% of all sites in the European Union). This is an exciting long-term opportunity for the company, though it is expected to be dilutive to 2022.
As electric vehicle adoption grows, FleetCor’s ability to manage “mixed” fleets of combustion and electric vehicles in a single network could prove to be quite an advantage.
The company’s mid-term growth objectives are to grow revenue organically at greater than 10% a year, and cash earnings per share at 15%-20%. Wall Street analysts currently project long-term EPS growth of 15% for the company.
Our model looks for 12% annualized EPS and sales growth over the next five years, accommodating any brief economic downturn before the company’s results turn upward again. If FleetCor outperforms, the rewards could be significant.
We are conservative in our selection of future high and low P/E ratios, at 24.0 and 12.0 respectively, below the typical valuations of the last five years. This results in a future high price of $513 and a future low price of $146. The current price of $187.74 sits at a 7.7:1 upside/downside ratio, and would allow for an annualized 22.3% return if our high price is reached.