FleetCor Upgraded At JPMorgan On Potential Positive EPS Revisions

Shares of FleetCor are down 2 percent in the last month and have underperformed versus rival WEX Inc WEX (+3 percent) and the Russell 2000 (+2 percent).

The brokerage said the underperformance sets stock "up well ahead of 2Q earnings, as FLT is one of the few names where we see positive EPS revision potential this earnings season (due to higher fuel prices and appreciation of the Brazilian real, which should more than offset incremental British pound headwinds)."

JPMorgan said both fleet card processors WEX and FleetCor will report results in late July/early August, and both could increase guidance for rising fuel prices, which should overshadow incremental FX headwinds.

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"Of the two, we think FLT has the greatest positive revision potential, as its current fuel price assumption is ~$0.25 lower than WEX's," analyst Tien-tsin Huang wrote in a note.

Moreover, JPMorgan believes FleetCor management will stay bullish on the pending STP acquisition, which the analysts say isn't reflected in consensus, but should be accretive in the second half.

That said, the brokerage cut its estimates, primarily for the depreciation in the British pound, which JPMorgan estimates will be a drag of about $25 million and $0.07 to annualized revenue and EPS, which is largely offset by appreciation in the Brazilian real.

"Our FY16 and FY17 EPS estimates go to $6.61 (from $6.66) and $7.50 (from $7.56), respectively," the analyst added.

Shares of FleetCor closed Monday's trading at $143.69. The analyst maintained the price target of $159, offering an upside of about 10 percent. At time of writing, FleetCor was up 2.16 percent on the day, trading at $146.80.