FleetCor Technologies, Inc. (FLT) was organized in 1986 and adopted its present name in 2000 when its present chief executive officer joined the company. It has grown both organically and through acquisitions in both the United States and abroad. In 2006, FleetCor bought companies in the United Kingdom and in the Czech Republic; in 2008, it acquired operations in continental Europe and Russia; and in 2011, it purchased a company in Mexico. FleetCor went public in December 2010. Acquisitions in 2012 included a second Russian business and a Brazilian company. At present, FleetCor does business in 23 countries through 18 offices, with application development centers in the U.S. the U.K., the Netherlands, the Czech Republic, and Russia. In the first nine months of 2012, 58% of the company’s revenues were from the United States and 42% were from other countries.
FleetCor provides payment products and services to businesses, commercial fleets, major oil companies, and governments. Products help customers manage employee spending and provide merchants, who accept credit cards, high-volume customers who can lift sales and customer loyalty. Card products act like credit cards and allow employees to buy fuel, vehicle maintenance, lodging, and related items at participating locations. In Europe, FleetCor offers a telematics product that permits customers to monitor fleet capacity utilization and vehicle movements through global positioning and satellite tracking. In Mexico, the company offers prepaid fuel and food vouchers that drivers can use to pay in restaurants, stores, and fuel stations; earnings in Mexico ought to grow rapidly as FleetCor moves customers in that country from paper to plastic and promotes fuel, which carries a higher margin than food.
FleetCor supports its card products with a variety of services, such as card issuing and processing, transaction settlement, and card-level controls and productivity analysis. The company offers a range of services from comprehensive “end-to-end” issuing, processing, and data analysis to limited back-office processing. In the first three quarters of 2012, 46% of FleetCor’s revenues came from fleet owning customers, and 54% derived from merchants such as major oil companies; FLT refers to the latter as “partners’’, though legally, they are simply contractual clients. Fleet sizes range from very small (under 10 vehicles) to over 150. “Partners’’ are mostly large oil companies, including BP (BP), Royal Dutch Shell (RDS), and Chevron (CVX - Free Chevron Stock Report); the latter contributed 11% to 2011 revenues, though that percentage has fallen with acquisitions made in 2012. Merchant partners also include some small vendors with one location.
FleetCor estimates that it processes payments for about 6% of U.S. commercial fuel volume and 5% of European volume, but only 0.2% of commercial fuel in the rest of the world. Organic growth in North America was about 11% in the 2012 third quarter, but acquisitions were the main reason for FleetCor’s roughly 37% jump in earnings per share. With around two-thirds of its employees working in overseas locations, foreign acquisitions will likely be the main driver of above-average earnings growth going forward.
We like FleetCor’s story and believe rapid share-net growth will continue. The quandary is one of valuation. Warren Buffet is fond of saying that he would rather buy a great company at a fair price than an average company at a good price. It remains to be seen if FLT will qualify as a “great” company. With an estimated forward price/earnings multiple of around 19.5, FLT shares could be in for a correction. Finances, though, could be a bit of a concern, as the company’s total debt to total capital, including short-term debt, is around 50%; that may limit acquisitions until earnings strengthen the equity base. Still, we think FLT may appeal to growth-oriented investors at their recent quote. But income seekers should not consider this stock, as FleetCor says it does not plan to pay a dividend “in the foreseeable future”.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.