Credit Suisse On World Fuel Services: 'Taking The Foot Off The Gas,' Downgraded

Credit Suisse has downgraded World Fuel Services Corp INT to Neutral from Outperform, citing longer-than-expected transition process and tepid macro environment.

World Fuel Services, a global fuel logistics company, reported adjusted EPS of $0.77 ahead of consensus of $0.75 and in-line with Credit Suisse estimate. The company generated revenue of $5.19 billion in the period, lower than $7.34 billion in the same quarter last year.

"While we like management's long term vision for the company, the transition process is taking longer than we'd like and the macro backdrop is not bailing them out. With the stock up 30% YTD we are moving to the sidelines," analyst Gregory Lewis wrote.

The unseasonably warm weather in the U.K. and U.S. and continued weakness in the marine markets hit the results, partially offset by growth in its aviation and land segments. The company's overall volumes grew 6 percent year-over-year.

"Despite the disruption in energy markets and continued global economic weakness, we remain confident in the ability of our diversified logistics, transaction and energy management business model to deliver near and long-term growth," Chief Executive Michael Kasbar said in a statement.

The analyst noted that following the airport fuel service acquisition from Exxon Mobil Corporation XOM in February, INT remains on the hunt for additional acquisitions. INT could provide more color on the XOM acquisition timing next quarter and the analyst said it should be $0.32-$0.36 accretive.

"We estimate net debt to EBITDA at 1.3x post the deal closing which still provides INT with ample capacity for acquisitions. With just a 1.5% share of the global fuel market, INT has a fertile hunting ground for acquisitions – we are thinking Land bolt-ons," Lewis elaborated.

Unseasonably warm weather caused a hiccup in EBIT at Watson (Land), which should mute the impact of the seasonally drop in Land in the second quarter, but the analyst expects Land EBIT to be down 15 percent sequentially. Marine segment reported its lowest EBIT level since 2007.

"Management was candid that there is some room to improve efficiencies, but INT is already a lean company leaving little fat to cut," Lewis highlighted.

Lewis cut his 2016/2017 EPS estimates to $2.80/$3.10 from $2.90/$3.30, respectively. Street expects earnings of $2.94 a share for 2016 and $3.37 a share for 2017.

Lewis has a price target of $45.