I’m a big believer in diversification, so when folks ask me for my top stock pick, I usually proceed with caution. But when given the opportunity to pit my top pick for 2014 against nine other experts last December, I jumped at the chance.
That’s because I had already spotted a stock that surpassed my high standards for growth projections.
I chose FleetCor Technologies (FLT). If you didn’t catch my recommendation earlier, FleetCor is best known as a fuel cards provider, but also deals with other specialized payment products such as food cards and corporate lodging discount cards. FleetCor serves more than half a million commercial accounts and millions of cardholders in 43 countries across North America, Europe, Africa and Asia.
That’s a lot of plastic.
FleetCor’s fuel cards are used by commercial and government fleets of all sizes, so expanding into the fleet management business was a natural fit. To this end, the company has been scooping up companies left and right. Last year, FleetCor acquired Epyx, which helps U.K.-based fleets manage vehicle maintenance and repair, and NexTraq, which offers real-time vehicle tracking, route optimization and fuel monitoring. And just last month, FleetCor bought a minority stake in U.K.’s Masternaut Group Holdings Ltd., a telematics company with more than 300,000 vehicles in its system.
This year so far, FLT has outperformed the S&P 500’s 6.5% gain by 2-to-1. If you would have asked me back in December, I would have expected a bigger beat. But when you consider the headwinds that FleetCor faced during that time, a 2-to-1 beat is remarkable.
First, FleetCor’s Russian business, particularly with its major oil partners, was disrupted by the Ukraine violence and an unfavorable ruble. At home, the company contended with a bitterly cold winter that disrupted commercial, business and personal travel. Meanwhile, the company’s effective tax rate increased, weighing on margins.
Despite all this, FLT stock has climbed 13% year-to-date, also trouncing the business services industry’s average of a 2%-plus loss.
I’m sticking with FleetCor because the second half of the year is shaping up to be spectacular. In the U.S., the company’s fleet solutions business is going strong. With the recent acquisition of NexTraq, FleetCor has a firm handhold in the fast-growing trucking industry. Last year, trucks moved nearly 70% of all U.S. freight and this year has been an even busier one for trucking companies.
Looking outside U.S. borders, FleetCor’s expansion into three promising markets — Brazil, Germany and Canada — is going smoothly. Just a few weeks ago, it appointed three industry veterans to head operations in each of these international markets and the recent investment in Masternaut will increase FleetCor’s exposure across the pond.
This all translates to robust top- and bottom-line growth for the foreseeable future.
This quarter, FleetCor is expected to post 25% annual EPS growth and 23.8% sales growth. That’s nearly double the 13.7% industry average for forecast earnings growth. For FY 2014, we’re looking at 24.4% estimated earnings growth and 22.8% sales growth.
FLT stock is currently trading at just more than 22 times forecast earnings, which is right around the industry average. So there is plenty of upside left for this business services company.
For FleetCor, outperformance is the name of the game. With the cold winter weather and Russian disruptions largely behind us, I expect its lead to only widen as we round out 2014.
Louis Navellier is the editor of Blue Chip Growth.