Robust Mobility And Corporate Payments Will Secure Future Stability

Key Takeaways

• The company's diversified segments and investment in technology drive revenue stability and growth, enhancing customer acquisition and retention.
  
• Innovations in Corporate Payments and strategic share repurchases improve profit margins, cash flow, and EPS, highlighting potential undervaluation relative to growth prospects.
  
• Economic uncertainties, including U.S. tariffs and macro conditions, threaten WEX's revenue growth, particularly in the Mobility and Corporate Payments segments.

Catalysts

Operates a commerce platform in the United States and internationally.

• The company's strong financial position and diversified segments provide resilience against short-term economic fluctuations, which can positively impact revenue stability and support consistent growth in earnings.
  
• Investments in new technologies, sales, and marketing, particularly in the Mobility segment, are showing early positive results, such as an 18% increase in new application volumes. This strategic focus is expected to drive higher revenue growth and improve net margins due to better customer acquisition and retention.
  
• The Benefits segment, representing 30% of the company's revenue, is positioned for stable long-term growth with increasing HSA accounts and a robust platform that simplifies employee benefits administration, potentially enhancing revenue and earnings stability over time.
  
• The Corporate Payments segment, including AP automation solutions, is experiencing significant growth in direct purchase volume. As these innovations integrate further into workflows, they are anticipated to improve operating leverage, leading to better profit margins and cash flow.
  
• Share repurchases have reduced outstanding shares by approximately 13.1%, which, in conjunction with incremental growth initiatives, may significantly enhance earnings per share (EPS) by leveraging reduced share count in conjunction with strategic economic positioning, making the stock undervalued relative to its growth prospects.

WEX Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WEX's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.1% today to 13.5% in 3 years time.
• Analysts expect earnings to reach $398.8 million (and earnings per share of $11.37) by about May 2028, up from $315.3 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $439.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from 13.3x today. This future PE is lower than the current PE for the US Diversified Financial industry at 14.2x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.76%, as per the Simply Wall St company report.

WEX Future Earnings Per Share Growth

Risks

• The U.S. tariff policy decisions are creating uncertainty in the economy, which could influence WEX's customers' behavior and potentially impact future revenues and customer demand.
  
• WEX reported a year-over-year revenue decline of 2.5% for the first quarter of 2025, signaling potential challenges in achieving sustained revenue growth under current economic conditions.
  
• The Mobility segment, which constitutes about 50% of WEX's revenue, experienced a decline in transaction levels due to external factors like weather events and economic softness, which could further impact revenues and margins if such trends persist.
  
• Purchase volumes in the Corporate Payments segment declined, partly due to a customer transition and the impact of macroeconomic conditions, which could affect future earnings and revenue stability in this segment.
  
• The company anticipates potential economic downturn impacts through macro levers like fuel prices and interest rates, business volumes, and asset quality, putting pressure on revenue and earnings if adverse conditions occur.

Valuation

• The analysts have a consensus price target of $154.992 for WEX based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $200.0, and the most bearish reporting a price target of just $130.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.9 billion, earnings will come to $398.8 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $122.34, the analyst price target of $154.99 is 21.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.