Friday's Sell-Off Is A Buying Opportunity For This Fast-Growing Energy Services Consolidator

Feb.26.12 | About: World Fuel (INT)

World Fuel Services (NYSE:INT) had a significant selloff Friday after reporting earnings. Earnings came in a penny above estimates, but revenues were light by around $400mm, even though it grew revenues some 80% in FY2011. I first bought INT back in May when it was trading around $35 a share. These shares were called from me (I sold covered calls on my position at a $40 strike price). The selloff gave me a chance to sell some slightly out of the money puts, and hopefully I will either pick up the premium and/or pick up these shares at a lower price.

Key drivers for World Fuel's long term earnings growth:

  • Its key marine customers are growing due to increasing world trade. The combined carrying capacity of oil tankers, dry-bulk carriers and container ships more than doubled over the past 15 years.
  • It is five times larger than its closest competitor, yet still has just 5% market share in this very fragmented industry. Consolidation should fuel growth for the foreseeable future.
  • It has a best in class balance sheet and no commodity price risk. As it acquires smaller competitors, it should continue to gain economies of scale and better prices from its suppliers.

World Fuel Services - "World Fuel Services Corporation, a fuel logistics company, engages in the marketing, distribution, and sale of aviation, marine, and land fuel products and related services worldwide. It operates in three segments: Aviation, Marine, and Land." (Business Description from Yahoo Finance).

4 reasons INT is still a good buy at under $44 a share:

  • Despite a terrible economic backdrop, the company has grown earnings at a 22% annual clip over that time span.
  • World Fuel has beat earnings estimates for at least twelve straight quarters and is selling at just 13 times forward earnings.
  • INT is a "Strong Buy" at S&P with a $54 price target. It also has an "Outperform" rating and a $56 price target at Credit Suisse.
  • World Fuel is projected to solid earnings growth going forward as it continues to grow by acquisitions and consolidates the industry. It made $2.72 in FY2011; analysts project it to make $3.03 in FY2012 and $3.38 in FY2013.

Disclosure: I am long (INT).