CPAY Stock Study (5-2-24)

I recently did a stock study on Corpay, Inc. [CPAY (formerly FLT), $296.25]. Previous studies are here and here.

Value Line writes:

     > Corpay, Inc. (formerly FLEETCOR) 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.

Over the last 10 years, this medium-size company has grown sales and earnings at annualized rates of 11.3% and 14.5%, respectively. Lines are mostly up, straight, and parallel except for a sales decline in ’20 and EPS declines in ’15 and ’20.

Over the past decade, PTPM leads peer and industry averages while ranging from 31.5% in ’15 to 45.0% in ’18 with a last-5-year mean of 37.8%. ROE leads peer averages and tracks evenly with the industry while generally trending up from 24.9% (’14) to 31.2% (’23) with a last-5-year mean of 28.4%. Debt-to-Capital is higher than peer and industry averages while trending higher from 56.6% (’14) to 67.2% (’23) with a last-5-year mean of 64.5%.

Interest Coverage is 4.8 or 13.8 according to M* or Value Line, respectively. M* reports Quick Ratio as 0.52. Value Line gives a B++ grade for Financial Strength. CFRA writes: “We like CPAY’s balance sheet at 2.7x net debt-to-EBITDA, down from 3.3x in Q4 2022, with healthy liquidity of ~$2.2B.”

With regard to sales growth:

• YF projects YOY 8.5% and 9.8% for ’24 and ’25, respectively (based on 17 analysts).
• Zacks projects YOY 8.3% and 9.4% for ’24 and ’25, respectively (7 analysts).
• Value Line projects 9.8% per year from ’23-’28.
• CFRA projects 8.8% YOY and 9.6% per year for ’24 and ’23-’25, respectively.
• M* provides a 2-year ACE of 8.9% per year.

I am forecasting below the range at 8.0% per year.

With regard to EPS growth:

• MarketWatch projects 15.4% and 15.1% per year for ’23-’25 and ’23-’26, respectively (based on 20 analysts).
• Nasdaq.com projects 15.5% YOY and 15.6% per year for ’25 and ’24-’26 (7, 7, and 4 analysts for ’24, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 14.5%.
• YF projects YOY 14.6% and 16.3% for ’24 and ’25, respectively (17), along with 5-year annualized growth of 13.3%.
• Zacks projects YOY 14.5% and 15.7% for ’24 and ’25, respectively (8), along with 5-year annualized growth of 14.5%.
• Value Line projects 15.0% per year from ’23-’28.
• CFRA projects 14.7% YOY and 15.3% per year for ’24 and ’23-’25, respectively, along with a 3-year CAGR of 12.0%.

My 10.0% per year forecast is below the four-long-term-estimate range. Although most estimates have edged slightly lower since my previous stock study nine months ago, I have increased by 200 basis points and am still under the analyst mean of 14.3%. I will use ’23 EPS of $13.20/share as the initial value.

My Forecast High P/E is 21.0. Over the past decade, high P/E ranges from 21.4 (’22) to 43.0 (’15) with a last-5-year mean of 29.0 and a last-5-year-mean average P/E of 23.0. I am below the range.

My Forecast Low P/E is 13.0. Over the past decade, low P/E ranges from 13.0 (’22) to 34.9 (’15) with a last-5-year mean of 17.1. I am at the bottom of the range.

My Low Stock Price Forecast (LSPF) is $204.00. Default based on $13.20/share initial value seems unreasonably low at $171.60 (42.1% less than the previous close). I am using the 52-week low price instead (31.1% less).

These inputs land CPAY in the HOLD zone with a U/D ratio of 1.6. Total Annualized Return (TAR) is 8.5%.

PAR (using Forecast Average—not High—P/E) is less than the current yield on T-bills at 4.1%. 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 136 studies done in the past 90 days (my study and 36 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 9.4%, 11.9%, 24.7, and 16.8, respectively. I am lower across the board. Value Line projects a future average annual P/E of 16.0 that is lower than MS (20.8) and mine (17.0).

MS high / low EPS are $23.14 / $12.87 vs. my $21.26 / $13.20 (per share). My high EPS is lower due to a lower growth rate. Value Line’s high EPS of $34.00 is much higher than both.

MS LSPF of $202.40 implies a Forecast Low P/E of 15.7 vs. the above-stated 16.8. MS LSPF is 6.4% less than the default $12.87/share * 16.8 = $216.22, which results in more conservative zoning. MS LSPF is also 0.8% less than mine.

TAR (over 15.0% preferred) is much less than MS 14.3%. MOS backing the current study seems robust.

With regard to valuation, PEG is 1.1 and 2.0 per Zacks and my projected P/E, respectively: the latter is overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.97.

Up ~46% over the past year, the stock has been on a roll. These are tough stocks to buy because they are often well extended from a buy point. More than anything else, I think that is taking place here.

CPAY is a BUY under $264/share. With a forecast high price ~$446, my TAR criterion will be met ~$223.