How This Small Competitor Is Outpacing MasterCard Inc and Visa Inc

Although MasterCard and Visa often hog the spotlight in the payments industry, they aren't the best growth investments in the space; that honor belongs to a small fuel card company called FleetCor.

May 19, 2014 at 9:00AM

In the payments industry, much of the spotlight is usually given to credit card giants like MasterCard (NYSE:MA) and Visa (NYSE:V). For good reason, they are huge. However, there remains a smaller and more aggressive growth alternative in FleetCor Technologies (NYSE:FLT), a global provider of fuel cards and related services.

In the wake of solid earnings from industry leaders like MasterCard and Visa, FleetCor's recent first quarter results look even more impressive. They also highlight just how robust growth in the fuel cards subcategory of the payments industry really is.

Fueled for growth:
FleetCor's growth in recent years has significantly outpaced that of larger payment solutions companies like MasterCard and Visa. The following YCharts comparison illustrates just how large the divergence has been:

ImageWhile MasterCard and Visa have both done well to grow revenue approximately 90% from 2010, FleetCor has basically tripled the sales growth of its larger competitors in the same time period.

Looking ahead, FleetCor is expected to continue outgrowing MasterCard and Visa too. According to Yahoo! Finance, on average analysts expect FleetCor to grow revenue 21.5% and EPS 24.2% in 2014. These estimates compare favorably to MasterCard's respective projections of 12.1% and 15.7% and Visa's 8.3% and 18.4%. 

Growth drivers
In the company's most recent earnings release, President and CEO Ronald Clark highlighted FleetCor's strengths, "The growth in the quarter was really driven by 2 things. First off, our biggest businesses performed quite well. Our North America fuel card business grew revenue 11%. Our U.K. fuel card business grew revenue 19%, and our CLC business grew revenue 16%. So really, strong organic growth performance from 3 of our biggest business." 

CEO Clark continued, "Second driver for the quarter was the new revenue from our 2013 acquisitions. So the most significant contributions would have been from VB Brazil, Epyx in the U.K. and NexTraq here in the U.S." 

As management acknowledged in the statements listed above, a main driver of growth for FleetCor is its expanding businesses. The following illustration from the company's investor presentation shows just how large the global growth opportunities are for FleetCor going forward.


Through acquisitions, expanded partnerships and innovative new product introductions, management at FleetCor is aiming to expand the company in a big way.

With the 2013 acquisition of Epyx, a UK-based operator of fleet maintenance programs, FleetCor now offers a suite of repair programs alongside its signature payments solutions.  While still a primarily UK-based operation, there doesn't seem to be a reason FleetCor can't expand these services to other areas in which it operates.

A second major development for FleetCor is the company's recent outsourcing deal with Shell. The deal gives it access to lucrative European markets that have historically been hard for FleetCor to penetrate. 

CEO Clark explained, "So we signed definitive documents to acquire Shell's private label card business of smaller clients in Germany in what we term a full outsourcing deal. In addition, we signed a broader framework agreement that would enable us to acquire Shell's portfolios in an additional 12 European markets, including sizable geographies like France, Poland and the Netherlands. So a big opportunity." 

To highlight just how aggressive management at FleetCor has been recently, consider this; in the last year the company has signed eight new partnership deals and closed seven acquisitions. 

Finally, on the innovation front, management at FleetCor has been busy introducing new functionalities such as web-based applications and new products like extended network cards, telematics and price protection for consumers. 

For 2014 specifically, FleetCor is set to introduce a new commercial chip and PIN card through Visa as well as a product called AllStar Premiere, which allows consumers to purchase universal payments solutions coverage at a discount. 


Source: FleetCor 

Bottom line
FleetCor is outgrowing MasterCard and Visa, and all indicators call for this outperformance to continue in the future. On the heels of solid earnings, which confirmed that the company's recent acquisitions are working well, investors should feel confident in FleetCor's long-term growth trajectory. 

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Philip Saglimbeni owns shares of FLEETCOR TECHNOLOGIES INC and MasterCard. The Motley Fool recommends MasterCard and Visa. The Motley Fool owns shares of MasterCard and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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