Overall, results were slightly better than expectations and lowered FY20 guidance was no surprise given recent interest rate cuts and unemployment pressures stemming from COVID-19. EPS of $0.98 ($0.97 adjusted for SBC) came in slightly above our model calling for $0.95 and the Street’s $0.96. Revenue of $1,143mn compares to consensus of $1,136mn and our model for $1,129mn. Revenues grew 7% Y/Y (~6% Y/Y organic). Management Solutions grew 6% Y/Y to ~$850mn (vs. 6% Y/Y last quarter) driven by increases in clients and growth in revenue per client from price increases and increased product penetration. PEO & Insurance Services revenue of $272mn was up 10% Y/Y and (vs. ~10% organic growth last quarter) driven by growth in clients in PEO and health and benefit clients/applicants in Insurance.
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Over the last several weeks, we’ve received incremental inbounds from investors looking for insights on the resiliency of our names to an economic slowdown, exposure to heavily pressured verticals and/or geographies, and debt/covenant considerations across our coverage.
Earlier this week (3/10 - 3/11), over 60 public and private companies across the FinTech space presented and/or hosted meetings at the ‘virtual’ Wolfe FinTech Forum. While most companies signaled near-term headwinds tied to COVID-19, others with significant eCommerce exposure were more constructive on trends and are seeing incremental volume shifting from physical POS. In addition, companies with significant recurring revenue and less cross-border exposure called out resilience in models. While hoping that health concerns and cases ease over the next several months, we continue to believe that if past is precedent, select names in our coverage, particularly with the above characteristics will continue to outperform the market in an economic downturn. While timing may be difficult, we also see the market dislocation as an opportunity to own long term secular growers. In this note, we highlight the most impactful themes from the event and provide stock specific takeaways (pages 6 to 14).
In this week’s Sunday Spotlight, we revisit FLT & WEX’s sensitivity to the price of crude in light of last week’s negotiation breakdown between OPEC and non-OPEC allies on production levels amid the COVID-19 outbreak, diving the global crude price per barrel below $40. Based on current prices and RBOB futures, we estimate the 1Q20 national average price per gallon of regular gasoline and diesel to be ~$2.45 and $2.85, respectively. Looking ahead, futures imply the 2H20 average price per gallon of regular gasoline and diesel to be in the range of ~$2.25-2.35 and ~$2.75-2.85, respectively. For reference, we recently reduced our 2Q20 EPS estimates for both FLT and WEX EPS reflecting fuel prices and COVID-19 implications and are now 5% and 7% below the Street for FLT and WEX, respectively. Despite our view that oil price fluctuation is largely non-fundamental, shares have historically exhibited a significant correlation to the price of crude.
This morning (03/11/20) we hosted Efrain Rivera, SVP, CFO & Treasurer of Paychex for a fireside chat at the emerging payments themed Wolfe FinTech Forum in NYC. Below are our key takeaways:
In this week’s Sunday Spotlight, we highlight our expectations for potential key takeaways on a company specific basis for the upcoming Wolfe FinTech Forum on March 10th and 11th (virtual format— update below.) See the body of the note for full detail, however some of our potential key takeaways include: 1) Coronavirus trends and impact color for V, MA, PYPL, WEX, WU, EEFT, and FLT, in particular to direct exposure on travel, cross-border, or other areas. We also expect discussion to increasingly focus around the U.S. exposure/impact on names like GPN, FIS, and others given potential spending changes at SMBs.
On March 10th and 11th 2020, we will be hosting the Wolfe FinTech Forum in NYC. Nearly 70 public and private companies across the space will be presenting and hosting meetings. Click here for registration and see Pages 4-6 for the agenda. We believe the winners in FinTech in the medium-term will be differentiated in one, if not more of the highest demand areas of the market, including: (1) eComm and mComm payments (2) POS software/tech (3) digital wallets enablement (4) digitization of B2B payments, including virtual cards, (5) cross-border enablement and risk management, and many more.
In this week’s Sunday Spotlight, we highlight work from Wolfe’s Technical Analyst Team, led by Rob Ginsberg and John Roque. The team provides a technical perspective on some of the names of which we have been receiving the most inbound calls including PYPL, SQ, FIS, FISV, GPN, V, MA, DXC, FLT, WEX, WU and EEFT. The team sees a bullish technical set-up for 4 out of the 12 names shown in this note, while 4 names appear to be in a holding pattern, and the remaining 4 names appear to be facing resistance or in position to consolidate. For each name we also highlight the key topics on investor’s minds coming out of 1Q. Notably, thematic trends emerged from the Technical Team’s analysis among the deal stocks (FIS and GPN bullish, FISV in a holding pattern) and the fleet cards (FLT and WEX bearish). See pages 4-16 for stock-specific technical charts and takeaways.
In this week’s Sunday Spotlight, we revisit China in the context of cross-border eComm considering commentary over the last week from several large retailers and reports suggesting significant economic headwinds due to Coronavirus. China remains among the largest markets for cross-border eCommerce with cross-border (inbound) eComm sales estimated to reach nearly $140B in 2020, relative to overall global cross-border eComm estimated at ~$700B. On the ground in China, many retailers have already begun to call out considerable headwinds tied directly to Coronavirus, with Adidas expecting Chinese sales to be down 85% Y/Y, AAPL expecting revenues to come in below guidance, and BABA calling for negative revenue growth for the quarter in select segments including China retail and local consumer services. While muted brick and mortar spend is to be expected in China near term, Coronavirus implications on eComm are less obvious.
In this week’s Sunday Spotlight, we look at the three ‘deal stocks’, Fiserv, FIS and Global Payments, examining their leverage, growth and margin profiles, 2020 outlooks, recent results, and more. Overall, despite nice run-ups for GPN and FIS shares in particular into earnings, all three stocks at least held their ground on their respective prints. While concerns about FISV’s top-line guided range of 6-8% Y/Y growth vs. prior “at least 7% Y/Y growth” kept shares somewhat at bay, most believed fundamental trends are largely unchanged with strong synergy potential. FIS surpassed expectations on the quarter and provided what we view as a conservative guide, strong wins in banking (including a newly announced top 10 client), and strength in its merchant acquiring business.
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