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On Friday, William Blair analysts downgraded WEX Inc. (NYSE:WEX) from Outperform to Market Perform. The firm expressed concerns about the company’s competitive edge and capital allocation strategies. They pointed out that WEX’s non-mobility segments, which accounted for over 45% of its 2024 revenue, no longer provide a competitive advantage. The stock has fallen sharply, dropping 17% in the past week and trading near its 52-week low of $149.29. According to InvestingPro data, the company maintains strong fundamentals with a 72% gross profit margin and $1 billion in EBITDA over the last twelve months.
The analysts noted that instead of opting for restructuring, WEX management plans to increase investment in corporate payments and benefits offerings. William Blair views this decision as a misallocation of resources and suggests that a restructuring would be a more effective strategy for shareholder value creation.
WEX is also planning to invest approximately $25 million in 2025 to stimulate faster growth. However, William Blair is skeptical about the potential returns from this investment, indicating that it may not be as attractive as anticipated.
Furthermore, the analysts foresee the possibility of activist action given the current circumstances. They believe that this could be another avenue through which long-term value could be unlocked for the shareholders of WEX.
In contrast to the downgrade of WEX, William Blair remains positive on other fintech companies. They recommend fintech investors to look for alpha-generation opportunities in companies such as Block, SoFi (NASDAQ:SOFI), Affirm, Shift4, and Corpay, all of which have been given an Outperform rating by the firm.
In other recent news, WEX Inc. has been center stage following the release of its fourth-quarter financial results. The company’s earnings aligned with analysts’ predictions for both revenue and adjusted earnings per share (EPS). However, the firm’s forecast for 2025 prompted analysts at Raymond (NSE:RYMD) James and BofA Securities to anticipate a significant drop in future estimates.
WEX revised its long-term organic revenue growth target to a range of 5% to 10%, a decrease from the previous 8% to 12%. The company also updated its long-term adjusted EPS growth algorithm to 10% to 15%, down from the former 15% to 20%. Analysts from Raymond James believe these revised targets reflect necessary adjustments based on recent trends.
Meanwhile, BofA Securities downgraded WEX’s stock from Buy to Neutral and significantly reduced the price target to $164 from the previous $211. This change comes after WEX’s fourth-quarter earnings report, which BofA Securities believes has eroded confidence in the company’s performance.
Despite the earnings miss and stock decline, WEX highlighted some positive metrics, including a 3% increase in the average number of vehicles serviced to 19.8 million and 2% growth in Benefits’ average number of SaaS accounts to 20.4 million. These are the most recent developments for WEX Inc.
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