FleetCor Shares Are 'Too Compelling To Ignore,' According To Oppenheimer

As such, the firm reiterated its Outperform rating and $185 price target on the shares of FleetCor.

FleetCor shares came under intense selling pressure in late February, when it was revealed that short seller Andrew Left of Citron Research took up a short position in the company. From late February, the stock was on a secular decline until early May, losing about 22.7 percent over the period.

However, the stock has recovered some of the lost ground since then.

Analysts Glenn Greene and Andrew Hummel said they believe the shares set up well heading into the fiscal year 2018 given a valuation that is well below the market peers and historical levels, various growth and profitability levers and an improved business mix.

Improved Business Mix

The analysts expect revenue growth to benefit from the faster growing Tolls and Corporate Payments businesses becoming a larger share of the business mix. The Tolls and Corporate Payments combined could account for about 30 percent of the calendar year 2018 revenues, with each growing mid-teens or better, the analysts added (see Greene's track record here).

Thanks to pricing initiatives, Oppenheimer expects STP growth to accelerate in the second half of 2017, with a high-teens or 20 percent growth likely by the end of 2017. The firm sees the recent Cambridge acquisition as a new long-term growth opportunity in the large international B2B payments market, likely adding 20 cents annually.

Meanwhile, Oppenheimer expects the fuel card revenues, which are more cyclical and accounted for 50 percent of the revenues in the first-half, to decrease to 46 percent of the calendar year 2018 revenues.

The firm maintains its 2017 earnings per share estimate at $8.34 but raised its 2018 estimate from $9.50 to $9.55. The firm clarified that its 2017 and 2018 earnings per share estimates reflected revenue growth of 21.5 percent to $2.22 billion and 11.5 percent to $2.48 billion, respectively.

Attractive Valuation

The firm noted that the shares of FleetCor traded at 16.5 times next-twelve-month P/E, about 21 percent below its 5-year 21 times average and 12 percent below its closest peer WEX Inc WEX. Additionally, the shares traded 7 percent below the S&P 500 compared to its 33 percent 5-year average premium.

"With shares trading at ~16x our FY18E, macro factors relatively neutral, and line-of-sight toward normalized low- to mid-teens organic (perhaps 20% overall) EPS growth, shares appear attractively valued, in our view," the firm said.