FleetCor Technologies Undervalued With Low Market Penetration And International Expansion

| About: FleetCor Technologies, (FLT)

FleetCor Technologies (NYSE:FLT) shares were in the news on Wednesday as the fuel card company continued its acquisition spree. The company, that is "a leading global provider of fleet cards and specialty payments to businesses," continues to look like a winning play on international expansion and increased utilization.

On Wednesday, FleetCor Technologies announced three news items from Brazil:

· Acquisition of VB Servicos - a provider of transportation cards in Brazil. VB has 35,000 business clients and covers 1 million trucking employees.

· Acquisition of DB Trans S.A. - payment solutions provider for independent truckers in Brazil

· Agreement with Good Card - signed partnership with one of the leaders in Brazil. Good Card is accepted at 40% of gas stations in Brazil. Gives FleetCor rights to issue fuel card program to small and medium enterprises in Brazil.

FleetCor Technologies is paying $300 million in total for the two acquisitions. The company will use cash and existing credit lines to pay for the acquisitions. The acquisitions will help power already strong international growth.

From a May presentation, here's the key to an investment in FleetCor. Market penetration for truckers is 6% in North America, 5% in Europe and 0.1% in the rest of the world. Acquisitions, like these two in Brazil, continue to increase the market penetration rate. FleetCo is paid by customers and merchants. In the first quarter of 2013, customers made up 51% of revenue, while merchants made up 49% of revenue. The company has strong EBITDA margins north of 50%.

Acquisitions are nothing new for FleetCor Technologies. In 2011, the company expanded in the United Kingdom and Mexico via deals. In 2012, FleetCor increased its presence in Russia and Brazil through acquisitions. Earlier in 2013, FleetCor made acquisitions in New Zealand and Australia. The company also expanded its operations in Canada through a deal with Husky Oil Limited, a retailer with over 500 locations.

FleetCor, founded in 1986, has strong brands like FleetCards USA, FuelMan, Key Fuels, The Fuel Card Company and Allstar. Along with its own brands, FleetCor uses key partnerships with leading fuel companies around the world. FleetCor has deals with Arco, BP, Chevron, Citgo, Q8 and recently Shell.

Earnings have been stellar for FleetCor in fiscal 2013. First quarter revenue increased 32%. In the first quarter, FleetCor raised its full year guidance for both revenue and earnings per share. In the second quarter, Fleetcor reported revenue of $201.3 million. This represented an increase of 31% from the previous year and easily beat analysts' forecasts. Earnings per share grew 35% to $1.00 for the second quarter. Due to the growth and recent acquisitions, FleetCor once again raised full year guidance. The company now sees full year revenue in a range of $825 to $830 million. Earnings per share are expected to fall between $3.82 and $3.87.

International markets continue to be the focus for the company's growth and a justification for a high price to earnings multiple. In the second quarter, revenue in North America grew 11% to $119.5 million. In international markets, revenue increased 57% to $101.4 million.

Analysts on Yahoo Finance see the company posting full year revenue of $852.5 million, an increase of 20.5%. Earnings per share are expected to come in at $3.90 according to analysts. As you can see, analysts are just as bullish on the company and have taken into account several earnings beats and guidance raises.

Looking ahead to fiscal 2014, analysts see revenue growing 13.6% to $968.2 million. With recent acquisitions and a history of double digit revenue gains, FleetCor could post $1 billion in fiscal 2014 revenue. Analysts see 2014 earnings per share coming in at $4.52. After posting earnings per share of $2.99 in fiscal 2012, the company is expected to increase them by 51% in two years. In the May presentation, FleetCor said it wanted to double earnings per share in the next three years.

Investing in FleetCor Technologies comes with several risks and may not be appropriate for everyone. The obvious risk is a high price to earnings multiple. At any time, the market may adjust and decide the company is worth only 18 to 20 times earnings, which could hurt shares dramatically. The company also relies on several large partnerships with retail gas station companies. If any of the gas companies decide to cut ties or start their own, FleetCor would lose large amounts of customers and could need additional revenue sources.

Shares of FleetCor were up over 3% throughout much of the day. Shares hit a new 52-week high of $110.42 at one point during Wednesday's trading session. At the end of the day, shares were up less than 2% despite the smart acquisitions and growth in Brazil. Ignore the high price to earnings ratio and consider going long FleetCor. This is a great play on international growth and further market penetration. There is plenty of growth and upside for the company's shares.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.