17. Corpay, Inc. (NYSE:CPAY)
Consensus Long-Term EPS Growth Estimate: 15%
Number of Hedge Fund Holders: 33
Corpay, Inc. (NYSE:CPAY) is a software company that caters to the needs of businesses. It allows firms to manage their vehicle fleets, make payments, and run other operations. As of H1 2024, $1 billion of its $1.9 billion in revenue came through vehicle payments. The reliance means that Corpay, Inc. (NYSE:CPAY) is quite dependent on the strength of logistics in the economy. As a result, while prior to the November Elections, the shares had gained a modest 17% year to date, they are up by 9.8% since then. Corpay, Inc. (NYSE:CPAY) also benefits from somewhat of a diversified business model. While 54% of its H1 2024 net revenues came from the US, 16%, 13%, and 17% came from Brazil, the UK, and other countries. Its presence in Brazil provides Corpay, Inc. (NYSE:CPAY) access to a high-growth economy and helps it weather turbulence in other regions. As a whole, as long as its geographic regions continue to have robust economic growth and the firm avoids mismanagement, Corpay, Inc. (NYSE:CPAY) can see tailwinds.
Third Point Management mentioned Corpay, Inc. (NYSE:CPAY) in its Q2 2024 investor letter. Here is what the fund said:
“This quarter we added to Corpay, Inc. (NYSE:CPAY) (formerly FLEETCOR), a position we initiated in the Fourth Quarter of 2023. Corpay is a collection of network assets in the payments space, most notably a fuel card business, where the company processes fuel purchases by commercial vehicle operators, and a B2B payments business where Corpay facilitates vendor payments for midmarket clients. These two segments together make up >70% of Corpay revenues. The company is run by CEO of 24 years, Ron Clarke, who in our view has delivered an impressive track record for shareholders of 20% compounded EPS growth since going public in 2010, including 15% over the last 10 years, through a combination of revenue growth, margin expansion, and accretive capital allocation in M&A and share repurchases.
Over the last five years, CPAY has seen its P/E multiple significantly de-rate from the mid-20s to ~13x as market sentiment toward the company’s core fuel card business soured. Firstly, growth in the segment has slowed as the market has matured. Secondly, the rise in popularity of electric vehicles (EVs) as a theme has made investors question the terminal value of a business whose main function is to process gasoline and diesel payments. Corpay has proactively prepared for an EV transition by making acquisitions in EV charging payments and adding mixed/EV fleets to its customer base, wherein CPAY earns higher unit economics on mixed fleets than it does on pure internal combustion engine fleets. Finally, the last year has demonstrated that a transition to an electric fleet is more easily said than done. With EV sales declining for industry bellwether Tesla, European EV sales declining overall, and flattening in the US, it is becoming clear that the journey of automotive electrification will be a long one…” (Click here to read the full text)
