Shares of WEX outperformed in today’s session (WEX up 4% vs S&P flat) as 4Q results beat expectations on the top and bottom line (after correcting for the $21mm ASC 606 reclass) and commentary suggesting that organic momentum in Travel & Corporate and Healthcare should offset Fuel headwinds in 2020. Investors were cautious heading into 3Q, considering management’s recent hesitancy to reiterate medium term guidance and SSS’s declines in industrial verticals. That said, today’s results should quiet near-term concerns as both non-fuel segments exited the year accelerating organically and management explicitly noted 2020 guidance across all segments was within medium term targets, despite fuel headwinds (see page three for incremental detail on guide).
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WEX reported 4Q results this morning (2/13/20), with revenues slightly missing expectations, an EPS beat, and 2020 guidance (excluding Optal and eNett) coming in below expectations. That said, there are several moving pieces in the print worth considering. First, the Company reduced 4Q revenue by $21mm to accurately reflect fleet revenues and sales and marketing expenses for certain partner arrangements, with $14mm of the adjustment attributable to 1Q-3Q. Second, while we had anticipated a softer macro environment based on commentary provided last Q, fuel expectations for 2020 are $2.70 for the year vs. the 4Q actual of $2.80. Lastly, the Company excluded potential revenues from the Optal and eNett acquisition announced last month, which are expected to close mid-2020. Assuming the transactions close July 1st, we estimate WEX will benefit from incremental revenue and EPS of $90mm and 15-20c, respectively.
FIS reported a healthy 4Q with 7% Y/Y organic growth vs. 3Q’s 5% Y/Y (6% Y/Y adjusting for stub period) organic growth and raised synergy expectations for both the year and FY22. FIS now expects to achieve $200mn of revenue synergies by YE ’20 (up $50mn) and $550mn by YE ’22 (up $50mn) after realizing $80mn through 4Q19. On the cost side, FIS expects to realize synergies of $600mn by YE ’20 (up $250mn) and $675mn by YE ’22 (up $175mn). Overall, we see 4Q results as strong with revenue trends in the quarter and guidance ahead of expectations and suspect that a higher than expected share count and D&A are weighing on the EPS guide. That said, we see EPS guidance as materially conservative and would not be surpsied to see FIS beat and raise throughout the year. We’d expect shares to hold YTD gains and show follow-through in coming weeks.
We see GPN’s 4Q results as solid and supportive of the recent YTD outperformance, with potential for some follow through over time given the belief that the company will drive upside to guidance from synergies, pricing, TSS organic acceleration, and M&A. We highlight that GPN grew 7% Y/Y CC organic in 4Q despite a ~50bps headwind from Hong Kong, suggesting 7-8% Y/Y CC growth. We believe that ex. upside from pricing, synergies and M&A, 1) Hong Kong comps easing (2H), 2) the CFPB impact (laps in 2Q), 3) the Issuer Solutions client change (laps in 2H20) and 4) a strong Issuer Solutions pipeline pre acquisition for 2020/2021 should get GPN to 8-9% growth in 2020 by itself. As a result, we view guidance as conservative and see ~100bps of upside to the mid-point of revenue guidance and 20c+ upside to the mid-point of the EPS guide as possible. We raise our PT from $215 to $218 and maintain our OP rating.
Visa called for potentially accelerating revenue growth over the next 3-5 years by “fortifying its foundation” and focusing on consumer payments, while continuing to invest in new flows, and value-added services. In our view, this represents an expansion in strategy from focusing on the core business, which could result in a positive impact to V’s multiple over the next few years.
Shares of EEFT underperformed today (02/12/20) (down 8% vs S&P flat) as 4Q revenues missed expectations and the 1Q EPS guide came in below expectations. While EFT and epay both recorded robust adjusted EBITDA growth throughout in 2019, up 43% and 17%, respectively, Money Transfer’s 7% growth tempered overall results. As a reminder, domestic money transfer was under pressure beginning in 2Q driven by MGI’s enacted ID requirements at WMT (outside of industry standard practice), creating knock down effects on EEFT’s Walmart to Walmart offering. Management believes the current negative trends in this offering have leveled off and remains confident in a 2H growth acceleration upon lapping these headwinds in 2Q, coupled with the expectation that Ria’s recently launched side by side int’l business at WMT begins to contribute to growth in a meaningful way. While branding will ramp through 1H, Ria int’l transactions are now live in 100% of WMT locations, and the Company noted that since Friday’s launch, 46% of all WMT locations have completed at least one Ria int’l transaction. Another key point of investor concern pertained to the lighter than expected 1Q guide ($0.95 vs $1.05 consensus), which management attributed to (1) domestic money transfer conservatism, (2) seasonally low DCC contribution (~10% of annual DCC revenues in 1Q), and a higher base of winterized ATM’s than prior years (~1k ATM’s vs ~900 EOY ‘19). While EEFT shares faltered in 2H19 and we recognize volatility/challenges forecasting certain aspects of revenue short-term, we still believe the challenges which surfaced will be relatively short lived and that EEFT’s expanding ATM base, partnerships with tech platforms, and differentiated tech positions the business at the center of the physical and digital payment universe with multiple levers to sustain LDD top and bottom line trends. We maintain OP rating and our $200 YE2020 PT (unchanged).
Overall C4Q19 results were slightly ahead of our and consensus expectations on the top and bottom line. GPN reported 4Q19 EPS of $1.62 vs. our estimate of $1.58 and consensus of $1.60. Revenue of $1,804mn compares to our model for $1,800mn and the Street’s $1,749mn. Merchant Solutions net revenue of $1.161bn (vs. our model for $1.160bn) was mostly in-line with our expectations while Issuer Solutions revenue beat by 1% vs. our model adding ~1c to EPS. Business & Consumer Solutions revenue was in-line with our model as well. The tax rate added acted as a tailwind adding ~2c vs. our model. We see GPN’s 4Q results as solid and supportive of the recent YTD outperformance, with potential for some follow through over time given the belief that the company will drive upside to guidance from synergies, pricing, TSS organic acceleration, and M&A. We maintain our Outperform rating on shares.
WU reported 4Q results yesterday (02/11/20), with both revenue and EPS below expectations. That said, the majority of the EPS miss was related to tax rate given timing of the tax consequences of asset sales and other one-time items. Transaction trends were impacted by continued weakness in domestic money transfer (DMT) growth and a number of geopolitical headwinds in the quarter (including civil conflicts in Lebannon, Syria, and Chile), and a cash tax in India (subsequently removed). Revenues of $1.308B were flat Y/Y reported and up 3% Y/Y CC (ex-Speedpay), slightly below our $1.31B and the Street’s $1.32B. Adj. EPS of $0.38 came in below our and the Street’s $0.43 (but was negatively impacted by 4c by tax charges). Transactions were broadly muted, with C2C trx down 1% Y/Y and WU.com trx decelerating to 13% Y/Y growth (vs. 16% in 3Q). WU.com revenue was up 18% Y/Y CC (vs. 17% in 3Q) as continued strong DD growth in cross-border (trending at ~25% growth) was partially offset by DMT declines. For reference, DMT is now <20% of WU.com revenue (and ~6% of total revenues), while the remaining +80% is tied to cross-border.
WU reported 4Q results after today’s (02/11/20) close, highlighted by the top and bottom-line coming in below our estimates. Revenues of $1.308B were flat Y/Y reported and up 3% Y/Y CC (ex-Speedpay), slightly below our $1.31B and the Street’s $1.32B. Adj. EPS of $0.38 came in below our and the Street’s $0.43. C2C trends were muted, with transactions down 1% Y/Y and cross-border principal up 2% Y/Y CC, while take rates were up 9bps Q/Q CC. Westernunion.com C2C revenue was up 18% Y/Y CC (vs. 17% in 3Q) with transaction growth of ~13% Y/Y (vs 16% in 3Q). Westernunion.com comprised 15% of total C2C revenue (vs. 14% in 3Q). Overall, we are encouraged by WU’s investments in digital capabilities, implementation of a dynamic pricing model, and incremental revenues via partnerships, however, relatively low growth expectations over the medium-term and an increasing valuation over the LTM keep us from becoming more constructive on shares. We continue to look for progress on the restructuring impact to margins as well as signs of growth inflection before becoming incrementally constructive.
EEFT reported 4Q19 results this morning (2/11/20), with a top line miss and bottom line beat (in-line after tax). Total revenues of $694mm were up 9% Y/Y on a LC basis, below our $704mm and the Street’s $714mm. Total adjusted EBITDA of $142mm represented margin of 20.5% (up 260bps Y/Y), in line with our $142mm (in-line with the Street). Adjusted EPS of $1.63 was above our $1.61 (in-line with the Street and guidance) (est. ~2c tax benefit). For 1Q20, the Company is guiding to adjusted EPS of $0.95 (11% Y/Y expected growth), below our $1.10 and the Street’s $1.05. That said, we remind investors 1Q is the Company’s seasonally lightest DCC quarter (~10% of annual DCC revenues), likely considers incremental start-up costs for the acquired 1,795 outsourced ATM’s in 4Q.
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