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Summary

  • FleetCor announced the acquisition of Comdata yesterday after close.
  • The acquisition should be completed in Q4 and add $0.50 to $0.60 to 2015 EPS.
  • I am raising my price target to reflect the raised FY 2015 expectations.

FleetCor (NYSE:FLT) announced that it will acquire Comdata for $3.45 billion. The company will issue 7 million shares and borrow $2.4 billion to finance the acquisition. Comdata provides fleet, virtual card and gift card solutions to over 20,000 customers, and has enabled over $54 billion in annual payments. The acquisition will expand FleetCor's North American fuel card business into new, unserved markets and enable entry into the virtual payments space which could be a substantial business down the road.

FleetCor also provided a preliminary 2015 outlook. The company expects that the Comdata acquisition will contribute $0.50 to $0.60 to full-year adjusted net income per share. The consolidated adjusted EPS is expected to be between $6.25 and $6.45, which is substantially above the current consensus for $5.94.

In my previous article on FleetCor, I suggested that the Comdata deal would likely provide further upside to FleetCor's share price. I also believe that the 2015 guidance is conservative, as management often leaves room to raise the guidance in every quarterly report. Since we have five earnings reports before the end of FY 2015, I believe that the EPS for 2015 should be between $6.50 and $7.00, depending on the integration timeline for Comdata. Given the changes in expectations, I am raising my price target from $153 to $169, which is now based on a 2015 P/E ratio of 25 and EPS at mid-point of my expectations. The upside could be even higher if the company's valuation continues to be at current levels, which I think is unlikely, since the revenue and earnings expansion do not guarantee that valuation will be this high in the next two years. The company's balance sheet is now also burdened with a substantially higher debt load, but this should not be an issue, since FleetCor should generate annual free cash flow in excess of $500 million in 2015 and beyond and should quickly de-lever in the next couple of quarters.

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

Source: Update: FleetCor's Comdata Acquisition