Shares of WEX (NYSE:WEX) rose 17.5% in December, according to data provided by S&P Global Market Intelligence. The company completed a major acquisition during the month at a reduced price, and Wall Street loved it. The stock made its biggest gains around that event and the subsequent commentary from analysts.
On Dec. 15, WEX used cash on hand to make a $577.5 million acquisition of eNett and Optal. So ended a bizarre and contentious transaction. In January 2020, before the COVID-19 outbreak had become a pandemic, WEX agreed to acquire eNett and Optal for a whopping $1.7 billion. But in May, it decided to pull out of the agreement, much to the displeasure of the other parties. In December, though, they were somehow finally able to come to terms on a revised deal, and WEX got a bargain.
Deutsche Bank analyst Ashish Sabadra kept his buy rating on WEX stock because of this transaction, according to reporting by The Fly. Similarly, Truist analyst Andrew Jeffrey raised his price target on WEX stock from $135 per share to $220 per share.
WEX operates in three segments, one of which is business travel. eNett and Optal offer similar services to WEX's travel segment. Given how business travel was decimated by the COVID-19 pandemic, it may take some time for these acquisitions to bear fruit. But assuming business travel does normalize in the coming year, Wall Street is probably right in celebrating the deal. It's impressive that a mid-cap company was able to save over $1 billion on a single transaction. It's a big deal.
For now, however, the biggest part of WEX's business is its specialized fuel cards. On that front, there was good news as well in December. LUKOIL North America, WEX's longest customer, signed a multiyear agreement to keep using its fuel-card services. It's a clear demonstration that companies like the specialized cards that WEX offers, which bodes well for the company's long-term viability as a niche payments player.