Equity Research 29 July 2019 CORE Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 25. Restricted - Internal U.S. Payments, Processors & IT Services FLT/WEX Quarterly Fuel Monitor: Modest Potential Q2 EPS Upside from Fuel Our analysis points to modest Q2 upside from fuel prices for FLT and WEX. Conversely, the fuel futures curve declined in Q2, pointing to slight pressure on FY EPS guidance. We are therefore modestly raising our Q2 estimates, but leaving our FY EPS for each stock unchanged. Fuel aside, we like the underlying setup for both FLT and WEX in Q2 and expect to see fundamental strength in both fuel and non-fuel segments continue to support shares. Our Q2 analysis shows potential revs/EPS upside driven by intra-quarter fuel price appreciation. Intra-quarter movements in fuel prices could provide a modest tailwind for Q2 revenue/EPS at both FLT and WEX. Our analysis shows a potential $0.04/$0.02 of EPS upside from fuel for FLT and WEX in Q2, respectively. In this context, we are raising our FLT and WEX revenue/EPS estimates for Q2 to $637M/$2.83 for FLT, and $444M/$2.27 for WEX (which compares to Street estimates of $634M/$2.80 and $440M/$2.26, respectively). Futures curve points to a somewhat less cooperative macro backdrop. Our analysis of the RBOB futures curve shows an ~9.2% from Q1 earnings through 7/25. In isolation, our model points to ~0.8%/1.7% downward pressure on FY EPS, for FLT and WEX, respectively. That said, we opted to leave our FY estimates largely unchanged due to projected Q2 outperformance, M&A, and generally strong underlying fundamentals. For the FY, we now expect FLT revenue/EPS estimates to come in at $2,641M/$11.72, respectively, vs. the Street at $2,642M/$11.70. For WEX, we now expect 2019 revenue/EPS of $1,733M/$9.30, respectively, vs. the Street at $1,737M/$9.31. Q2 and 2019 setup continues to look solid for both stocks; we are raising our price targets. We continue to like the setup for both stocks given strength in non-fuel segments, easing FX headwinds, and an increasing recognition on the part of investors that—despite fuel-related volatility—FLT and WEX are high-quality compounding earners. For these reasons we are raising our price target for FLT to $320 (from $297 prior), and for WEX to $260 (from $238 prior). Key topics for Q2 earnings. For FLT’s earnings call, we expect to get an update on: 1) non-Tolls product in Brazil; 2) Beyond Fuel product; 3) M&A environment; and 4) progress on penetrating “grey collar worker” segment in Lodging. For WEX, key discussion topics on the call may include: 1) update to fuel price guidance given futures curve movement; 2) color on ramp of new fuel portfolios (Shell/Chevron); 3) health of underlying drivers in Travel & Corporate Payments business; 4) M&A environment/plans. INDUSTRY UPDATE U.S. Payments, Processors & IT Services POSITIVE Unchanged For a full list of our ratings, price target and earnings changes in this report, please see table on page 2. U.S. Payments, Processors & IT Services Ramsey El-Assal +1 212 526 7144 Ramsey.El-Assal@barclays.com BCI, US Damian Wille +1 212 526 2469 damian.wille@barclays.com BCI, US Benjamin Budish, CFA +1 212 526 2418 benjamin.budish@barclays.com BCI, US Barclays | U.S. Payments, Processors & IT Services 29 July 2019 2 Summary of our Ratings, Price Targets and Earnings Changes in this Report (all changes are shown in bold) Company Rating Price Price Target EPS FY1 (E) EPS FY2 (E) Old New 25-Jul-19 Old New %Chg Old New %Chg Old New %Chg U.S. Payments, Processors & IT Services Pos Pos Fleetcor Technologies (FLT) OW OW 285.48 297.00 320.00 8 11.72 11.72 - 13.48 13.48 - WEX, Inc. (WEX) OW OW 215.68 238.00 260.00 9 9.30 9.30 - 10.65 10.76 1 Source: Barclays Research. Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency. FY1(E): Current fiscal year estimates by Barclays Research. FY2(E): Next fiscal year estimates by Barclays Research. Stock Rating: OW: Overweight; EW: Equal Weight; UW: Underweight; RS: Rating Suspended Industry View: Pos: Positive; Neu: Neutral; Neg: Negative Barclays | U.S. Payments, Processors & IT Services 29 July 2019 3 Fuel Futures Curve Declines in Q2 The RBOB Futures curve declined relative to when FLT and WEX provided their respective annual fuel price guidance. In order to gain a directional read on potential changes to annual fuel price guidance for both FLT and WEX, we look at intra-quarter movement of the 12-month forward RBOB futures curve starting at the time each company sets their respective prior fuel ...
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