Corpay, Inc. (CPAY – Free Report) stock has had an impressive run in the past six months. Shares of the company have gained 26.6%, outperforming 21.1% and 8.9% growth of the industry and the Zacks S&P 500 composite, respectively.
Six Months Price Performance
Image Source: Zacks Investment Research
CPAY’s revenues are anticipated to increase 6.3% and 11.8% year over year in 2024 and 2025, respectively. Earnings are estimated to rise 12.3% in 2024 and 16% in 2025. The company has an estimated long-term (three to five years) earnings per share growth rate of 14.3%.
Factors That Auger Well for CPAY’s Success
Corpay continues to observe solid organic revenue growth, fueled by sales, enhancing customer retention and business initiatives. Notably, organic revenue growth was 12%, 13% and 10% in 2021, 2022 and 2023, respectively. Acquisitions conducted by the company have been making significant impacts on its revenue growth.
The company has been pursuing buyouts and investing constantly in the United States and globally to expand its customer base, workforce, operational capabilities and services across various industries.
The PayByPhone buyout in 2023 expanded CPAY’s vehicle payment solutions for B2B fleet customers in North America and Europe. The company has acquired three key entities. It purchased Mina Digital Limited, which is a cloud-based electric vehicle charging software platform. Business Gateway AG, a technology provider for service, maintenance and repair, was acquired in 2023, and Global Reach Group, a U.K.-based global cross-border provider, was bought out in 2022. These acquisitions marked a remarkable expansion of the company’s product portfolio and geographic presence.
Corpay’s current ratio (a measure of liquidity) at the end of third-quarter 2024 was 1.05, higher than the industry average of 1.15. Despite the fallback, it has increased from the preceding quarter and the year-ago quarter’s 1.02 due to a rise in restricted cash. A current ratio of more than 1 reflects CPAY’s ability to pay off short-term obligations.
We are impressed with the company’s endeavors to reward its shareholders through share repurchases. In 2021, 2022 and 2023, the company repurchased shares worth $1.36 billion, $1.41 billion and $686.9 million, respectively. Such strategies indicate its commitment to create value for shareholders and underline its confidence in its business. These shareholder-friendly initiatives not only increase investor confidence but also positively impact the bottom line.
Risks Faced by Corpay
CPAY is witnessing higher interest expenses due to a rise in the LIBOR rate and additional borrowings. Interest expenses rose 44.8% and 111.7% in 2022 and 2023, respectively. We anticipate the metric to increase 11.4% in 2024. Hence, the bottom line is likely to remain under pressure going forward.
Seasonality affects CPAY’s fuel card, workforce payment solutions and gift card businesses. In the first and fourth quarters of a year, fuel card and workforce payment solutions businesses usually get affected by the prevailing weather conditions, the U.S. holidays, the Christmas celebration in Russia in January, lower business activities in Brazil due to the summer holidays, and the Carnival celebration. In the third and fourth quarters, the gift card business usually witnesses higher revenues due to the holiday season.
Corpay’s Zacks Rank & Stocks to Consider
CPAY carries a Zacks Rank #3 (Hold) at present.
Some better-ranked stocks from the broader Zacks Business Services sector are AppLovin (APP – Free Report) and Climb Global Solutions, Inc. (CLMB – Free Report) , each flaunting a Zacks Rank of 1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
AppLovin has a long-term earnings growth expectation of 20%. APP delivered a trailing four-quarter earnings surprise of 26.2%, on average.
Climb Global Solutions has a long-term earnings growth expectation of 16%. CLMB delivered a trailing four-quarter earnings surprise of 51.1%, on average.
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