Compass Point Starts WEX Inc. (WEX) at Neutral

Compass Point initiates coverage on WEX Inc. (NYSE: WEX) with a Neutral rating and a price target of $81.00.

Analyst John Williams commented, "We initiate coverage of WEX with a Neutral rating and $81 price target. WEX offers strong growth and returns and exposure to the underpenetrated fleet card segment, and benefits from solid secular trends, though estimate uncertainty, fairly full valuation and a strong recent bounce in the stock suggest to us that risk/reward is not presently favorable. We are Neutral-rated, for the following reasons: (1) Since the FY 2016 Consensus EPS estimate for WEX is -32% YoY, we do not expect much more estimate downside, though WEX shares have moved tick-for-tick with oil over the last year (and for some time before). Justified or not, a strong view on the stock requires a strong view on the direction of oil prices— which is not our bailiwick (though, statistically, oil prices seem to move the stock more than justified given WEX’s 30-35% revenue exposure). (2) We would consider a more aggressive view at a lower multiple or at a different point in the economic cycle, as we believe the best time to buy fleet card businesses is when vehicles are idle (and awaiting a demand pickup) and the economy is emerging from recession— not (potentially) entering one. (3) Capital allocation has been more aggressive than typical (a consequence of competing with FLT): leverage has moved up to 3.0x, WEX has less dry powder, and integration could lead to some operational hiccups."

For an analyst ratings summary and ratings history on WEX Inc. click here. For more ratings news on WEX Inc. click here.

Shares of WEX Inc. closed at $86.59 yesterday.

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