Why Is Wex (WEX) Up 27.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Wex (WEX). Shares have added about 27.8% 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 catalysts.

WEX’s Q1 Earnings Miss Estimates

WEX reported mixed first-quarter 2020 results, with earnings missing the Zacks Consensus Estimate but revenues beating the same.

Adjusted earnings of $1.81 per share missed the Zacks Consensus estimate by 11.7% and increased 5.2% year over year. The reported figure came in below the company’s guidance of $2.15-$2.25. Total revenues of $431.7 million surpassed the consensus mark by 1.3% and increased 13% year over year. Revenues, however, fell short of management’s guidance of $445-$455 million.

All the segments of the company registered year-over-year revenue growth on market-share expansion and recent acquisitions. In response to the coronavirus crisis, WEX’s counter actions included pay cuts for the board and executive officers, re-scaling headcount worldwide and implementation of a company-wide work-from-home policy.

Revenues by Segment

Fleet Solutions revenues (58% of total revenues) increased 7.3% year over year to $249.8 million. This upside was driven by solid finance fee revenues and payment processing revenues related to two major North America portfolios.

Average number of vehicles serviced was 15.1 million, up 15% from the year-ago quarter’s figure. Total fuel transactions processed increased 7% from the year-ago quarter’s tally to 150.7 million. Payment processing transactions rose 5% to 121.6 million. U.S. retail fuel price declined 3.7% to $2.57 per gallon.

Travel and Corporate Solutions revenues (20%) of $84.4 million were up 3.3% year over year. The uptick can be attributed to strength in the corporate payments business owing to the ongoing transition to virtual payments and increasing usage of accounts payable products. The coronavirus pandemic’s adverse impact on travel volumes strained the segment’s revenues. Purchase volume decreased 4% to $8.0 billion.

Health and Employee Benefit Solutions revenues (22%) of $97.5 million jumped 44.5%, year over year, on 48% growth in U.S. healthcare business and contributions from the acquisition of Discovery Benefits. The average number of Software-as-a-Service (SaaS) accounts in the United States climbed 14% year over year to 14.5 million.

Operating Results

Adjusted operating income increased 7.1% from the prior-year quarter’s figure to $139.4 million. Adjusted operating income margin decreased to 32.3% from the year-ago quarter’s 34.1%.

Balance Sheet

WEX exited the first quarter with cash and cash equivalents of $861.2 million compared with the $810.9 million witnessed at the end of the prior quarter. Long-term debt was $2.7 billion, nearly flat year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted -9.14% due to these changes.

VGM Scores

Currently, Wex has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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