FLT Stock Study (5-4-23)

I recently did a stock study on Fleetcor Technologies Inc. (FLT) with a closing price of $207.34.

Value Line writes:

     > FLEETCOR Technologies, Inc. is a leading independent provider of fuel
     > cards, and payment products and services throughout North America,
     > Latin America, and Europe. Its corporate charge cards cater to
     > commercial fleets, major oil companies, petroleum marketers, and
     > government entities. The company owns and operates proprietary
     > closed-loop networks electronically connected to merchants, through
     > which it captures and reports customized information.

This medium-size company has grown sales and earnings at annualized rates of 13.6% and 15.5%, respectively, over the last 10 years. Lines are mostly up, straight, and parallel except for sales decline in ’20 and EPS declines in ’15 and ’20. PTPM has led peer and industry averages, ranging from 31.5% (’15) to 45.1% (’13) with a last-5-year average of 39.8%.

ROE has tracked evenly with the industry and ahead of peer averages over the last decade, ranging from 12.0% (’15) to 41.1% (upside outlier, perhaps, in ’22) with a last-5-year average of 26.4%. Debt-to-Capital has trended uncomfortably higher from 54.4% to 73.5% over this time span with a last-5-year average of 62.8%. This is greater than industry averages and roughly even with peers.

Interest Coverage is 8.8 or 13.8 according to M* and Value Line, respectively. The latter reports Quick Ratio as 0.58. Value Line gives a B++ grade for Financial Strength while CFRA writes, “balance sheet is in a good place at 2.8x net debt-to-EBITDA with healthy liquidity of ~$2B.”

I forecast long-term annualized sales growth of 7% based on the following:

• CNN Business projects 11.8% YOY and 11.1% per year for ’23 and ’22-’24, respectively (based on 17 analysts).
• YF projects YOY 11.3% and 9.4% for ’23 and ’24, respectively (17 analysts).
• Zacks projects YOY 11.2% and 8.7% for ’23 and ’24, respectively (7).
• Value Line projects 7.0% growth per year from ’22-’27.
• CFRA projects 11.2% YOY and 9.6% per year for ’23 and ’22-’24, respectively.
• M* provides a 2-year ACE of 9.9%.

I am forecasting at the bottom of the range.

I forecast long-term annualized EPS growth of 9% based on the following:

• CNN Business projects 5.9% YOY and 10.7% per year for ’23 and ’22-’24, respectively (based on 17 analysts), along with 13.1% annualized for the next five years.
• MarketWatch projects 11.1% and 13.0% per year for ’22-’24 and ’22-’25, respectively (20 analysts).
• Nasdaq.com projects 17.4% YOY and 17.6% per year for ’24 and ’23-’25 (7, 7, and 3 analysts for ’23, ’24, and ’25).
• Seeking Alpha projects 4-year annualized growth of 12.1%.
• YF projects YOY 5.5% and 15.5% for ’23 and ’24, respectively (16), along with 5-year annualized growth of 13.7%.
• Zacks projects YOY 5.5% and 16.1% for ’23 and ’24, respectively (8), along with 5-year annualized growth of 12.1%.
• Value Line projects 9.8% per year from ’22-’27.
• CFRA projects 6.3% YOY and 10.5% per year for ’23 and ’22-’24, respectively, along with a 3-year CAGR of 16.0%.

I am forecasting below the long-term-estimate range (mean of five: 12.2%).

My Forecast High P/E is 21. Over the last decade, high P/E has ranged from 21.4 (’22) to 43.0 (’15) with a last-5-year average of 29.9. I am forecasting below the range.

My Forecast Low P/E is 13. Over the last decade, low P/E has ranged from 13.0 (’22) to 34.9 (’15) with a last-5-year average of 18.3. I am forecasting at the bottom of the range.

My Low Stock Price Forecast (LSPF) is the default value of $161.50. This is 22.1% below the last closing price and 20 cents less than 2022 and 52-week lows.

These inputs land FLT in the BUY zone with an U/D ratio of 4.2. The Total Annualized Return (TAR) is 14.1%.

PAR (using Forecast Average—not High—P/E) is 9.4%, which is less than I seek in a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 373 studies done in the past 90 days (91 outliers and my study excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.0%, 11.9%, 25.0, and 17.3. I am lower across the board. Value Line projects a future average annual P/E of 14.5, which is lower than MS (21.2) and lower than mine (17.0). The latter leaves me perplexed since I can count on one hand the number of times Value Line has projected a much lower average annual P/E. This somewhat neutralizes my perception of MOS in the current study.

With regard to other data, MS high and low EPS are $21.75/share and $11.41/share compared to my $19.11 and $12.42. My high EPS is lower due to a lower forecast growth rate and my low EPS is probably higher due to the most recent quarterly growth. The MS LSPF of $167.00 implies a Forecast Low P/E of 14.6 (vs. 17.3), is 3.4% higher than mine, and is 15.4% less than the default value of $11.41 * 17.3 = $197.39.

FLT is a BUY under $221/share, but due to the concern over future P/E range I am lowering that to $210.