Activist Hedge Fund Behemoth's Deal Will Limit FleetCor Stock's Downside, But 'Show Me The Money,' Analyst Says

  • Raymond James analyst John Davis upgrades FleetCor Technologies, Inc. FLT from Market Perform to Outperform and a $254 price target.
  • On March 20, FLT entered into a cooperation agreement with D.E. Shaw that included a board refresh and strategic portfolio review, likely to be completed by year-end.
  • The most likely outcome would be to separate the Corporate Payments business through a sale or spin, given that it is now at a significant scale, has sustainable growth above the consolidated business, and the margin profile has improved meaningfully over the last few years.
  • D.E. Shaw's involvement and corresponding strategic review skew the risk and reward favorably as the analyst's SOTP math suggests separating the Corporate Payments business through a sale or spin would create significant shareholder value. 
  • Additionally, the resolution of the FTC suit and EPS growth acceleration in 2024 could provide further catalysts. 
  • The FTC overhang will likely resolve sometime in 2Q23, possibly keeping some potential shareholders away despite an attractive valuation and business model. Davis does not expect the final settlement to include any monetary penalty. Additionally, the investors will likely turn to 2024 and the EPS acceleration. Significantly, the interest expense headwind in FY23 should dissipate next year.
  • The analyst believes the activist involvement and strategic review limit the downside should macro conditions worsen. 
  • While the analyst thinks a take private scenario of the entire company would make sense, the sheer size of the deal makes this outcome less likely.
  • Price Action: FLT shares traded higher by 4.51% at $208.07 on the last check Tuesday.
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