Corporate purchasing cards, including fuel-only payment cards, are a big growth industry, both in the U.S. and abroad, with 64 percent of U.S. companies stating they currently use purchase card programs, according to PayStream, an industry analytical firm. So why aren’t more investors talking payment cards up? And more importantly, why aren’t more investors snapping up shares of purchase card providers?
Before we dig in to those topics, let’s define purchase cards, so we can better vet them as an investment opportunity. According to PayStream, corporate purchase card programs are a form of company charge card that allows goods and services to be procured without utilizing a traditional purchasing process.
Additionally, purchase cards are a payment tool designed to make the business purchasing process more efficient by reducing paperwork, providing greater control over spending, and visibility into spending patterns. “Purchasing cards can reduce the workload for both accounts payable and purchasing departments at essentially no cost to an organization. In addition, these programs can simplify the reconciliation process, eliminate out-of-pocket expenses, and improve supplier negotiations,” reports PayStream.
Savings are the biggest reason companies switch from paper-based checks to payment cards, PayStream adds. “When check payments are switched from the traditional process to a Purchasing Card, efficiency savings range from 55 percent to 80 percent of the traditional process cost,” the company reports.
As stated above, 64 percent of U.S. companies have some form of purchase card programs up and running right now, with another six percent saying they plan to add a new card program in the next six months, bringing total immersion into the sector at 70 percent of U.S. firms.
One segment of the purchasing card sector that’s faring very well right now is fuel cards (also known as “fleet cards.”) And one company I like a lot that specializes in fuel cards is FleetCor (NYSE: FLT), a payment card provider whose stock is trading at $ 123 as of May 5, 2014, but should go significantly higher.
Why? Lots of reasons, actually. But the most compelling one is a continuing earnings success story that is showing no sign of slowing down. Last week, the firm reported first quarter earnings that showed remarkable sales growth of 31 percent, along with adjusted net income per diluted share growth of 25 percent.
Here’s a deeper look at FleetCor’s Q1 numbers: Total revenues increased 31 percent to $ 253.9 million compared to $ 193.7 million in the first quarter of 2013. Net income increased 16 percent to $ 75.1 million compared to $ 64.7 million in the first quarter of 2013. And net income per diluted share increased 14 percent to $ 0.88 compared to $ 0.77 in the first quarter of 2013.
“The growth in the quarter was really driven by two things,” says Ronald F. Clarke, chief executive officer at FleetCor, in a May 1, 2014 conference call. “First off, our biggest businesses performed quite well. Our North America fuel card business grew revenue 11 percent. Our U.K. fuel card business grew revenue 19 percent, and our CLC business grew revenue 16 percent. So really, strong organic growth performance from three of our biggest business.”
Going forward, firm executives see more of the same for the rest of 2014. “Given our strong first quarter results, we are raising our financial guidance for 2014,” notes Eric Dey, chief financial officer FleetCor Technologies, Inc., in comments to the media last week. “We are now expecting a 21 percent growth in revenue and 24 percent adjusted net income per share growth rate, at the midpoint of our guidance range, versus 2013.”
“In addition, a number of our businesses are off to a strong start this year, which we anticipate will more than offset the economic weakness in our Russian business and expected unfavorable foreign exchange rates in Russia and Brazil over the balance of the year.”
Wall Street analysts are sitting up and taking notice of purchase payment card programs, in general, and FLT, specifically, in the past several days. Some see FLT as a “perfect storm” stock – good in both the short and long term. “FleetCor is one of those stocks that looked set to outperform over a one-to-three month timeframe, but then turned into a longer-term holding, resulting in even more impressive gains,” Zacks Investment Research, in a research note out last week.
Zacks points out that FleetCor’s recent track record is one of remarkable performance growth, and notes the trend should continue “Over the course of 14 months leading up to October, 2013, they received 59 upward earnings estimate revisions in a row, produced four positive EPS surprises, and rewarded investors with a 163.38 percent gain compared to the market’s 41.60 percent,” says Zacks. “During that time, their 12 month forward earnings estimates steadily climbed from $ 2.91 to $ 4.25, and was the clear catalyst for FLT’s stellar gains.”
Given FleetCor’s recent history of stable revenue growth, earnings per share outperformance, its strong net income story, fatter profit margins, and the overall sunny outlook for fuel card growth across the globe, I’m very bullish on FLT – and see it rising to $ 140 per share in the next two quarters. So fill up on FleetCor. It’s one card payment provider that deserves a slot in your stock portfolio.
(For a deeper look at FleetCor, check out Investing Daily’s Editorial Director John Persino’s 2013 review of the company’s stock prospects here http://www.investingdaily.com/17387/king-of-the-road/ .)
Brian O’Connell is an investment analyst at Investing Daily. He has appeared as an expert financial commentator on CNN, NPR, Fox News, Bloomberg, CNBC, C-Span, CBS Radio, and many other media broadcast outlets.
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