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WEX - Continuing To Grow And Diversify

Mar. 07, 2021 7:57 AM ETWEX Inc. (WEX) Stock3 Comments


  • WEX continues to diversify away from its core fleet solutions business.
  • The company has taken on some leverage yet has fared quite well during the pandemic.
  • Current conditions hit the company in the near term, yet provides a boom to the long-term potential of the company, as investors and management are quite optimistic here.
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WEX (NYSE:WEX) has been active on the dealmaking front late in 2020. The company has been a long-term value creator which has been operating a bit under the radar in recent years.

My last update on the company was nearly 7 years ago when the company acquired Evolution1 in the summer of 2014, in a deal valued at just over half a billion to diversify away from the core fleet business.

Trip Down Memory Lane

When WEX acquired Evolution 1 in 2014, I thought that the purchase of the cloud-based technology and payment solution provider for the healthcare industry made sense. Diversification from its core line of business was welcomed, while the company has quite a solid acquisition track record as the market for complex (healthcare) payments is quite compelling.

Given the $4.3 billion enterprise valuation at the time, the deal was important and was set to bolster revenues running at $777 million, while adjusted earnings were seen at $189 million. Based on the equity valuation of $4.0 billion, WEX traded at 5 times sales and 21 times adjusted earnings.

These were not low valuations for a business generating three-quarter of revenues from fleet cards being used at fuel stations, yet the company had quite a solid track record, having essentially quadrupled sales and earnings without too much dilution in the decade before.

The company was already moving away from merely fleet card to adjacent markets for travel, health and employees, using its quantitative analysis and shared data as core competencies. Its non-fleet business had grown to a quarter of sales by 2014, largely driven by dealmaking. Given the premium (remember valuations at the time) I decided to become a buyer around the $80 mark, if shares might see a 20% pullback.

What Happened?

After trading around the $100 mark for

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This article was written by

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Comments (3)

In your view - your opinion and not recommendations: which is well positioned as a good long term play (putting valuations aside and looking at these two companies on their own merits or de-merits): WEX vs FLT? Thanks
The article is not very clear of what exactly WEX does, who are the real competitors of WEX? Where is the moat in WEX? Thanks
The Value Investor profile picture
@kalu0003 Good point. I typically write for the audience, those investors already known with the company. WEX is mostly active as fleet card provider, providing payment processing, information management and even loyalty tracking. Strength is in data analytics, volume, network, which it aims to export to other adajcent markets. This moat is good in an ''old'' world, as I wonder the true long term impact of other payment methods as well.
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