Finding opportunities that remain robust during market downturns is the holy grail for many investors. Fleet management companies have long been considered strong investments during economic uncertainties. Element Fleet Management (TSX: EFN) stands out as a stellar example. In this article, we will dissect its recent earnings report and explore its promising future outlook.
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Earnings growth: A solid foundation
To gauge whether EFN stock is a strong or weak buy right now, let’s start with its recent earnings report for the second quarter (Q2) of 2023. Element delivered a record $323.1 million of net revenue in Q2, marking a remarkable 12.1% growth over Q2 of the previous year. Even more impressive is the 8.4% growth over “organic” Q2 2022 net revenue in constant currency.
Earnings per share (EPS) for Q2 2023 came in at $0.29, showing a three-cent improvement over Q2 2022. Adjusted EPS was even more impressive, hitting $0.33, a quarterly record and five cents higher than “organic” Q2 2022. The company generated a record $0.46 of free cash flow (FCF) per share in Q2 2023, outperforming the previous year by nine cents.
Record services revenue of $169.8 million in Q2 2023 represented a 13.2% growth over Q2 2022. Capital-light services revenue, along with syndication revenue of $11.4 million, combined in Q2 to enhance Element’s return on common equity to 12.3% and pre-tax return on common equity to a record 19.2%. Additionally, Element originated a quarterly record of $2.5 billion worth of vehicles in Q2, signalling robust demand and market presence.
Future outlook: Promising guidance and analysts agree
EFN stock reaffirmed its full-year 2023 results guidance, indicating strong confidence in its future performance. Key metrics for 2023 include the following:
- Net revenue guidance of $1,240-$1,260 million, implying a growth rate of 6.5-8.5%.
- Operating margin target of 54-55%.
- Adjusted operating income guidance of $675-$700 million, reflecting a 7-10% increase.
- Adjusted EPS guidance of $1.26-$1.31, with an impressive growth rate of 12-16%.
- FCF per share guidance of $1.58-$1.63, indicating a substantial 13-17% growth.
- Originations target of $8,000-$8,500 million, with a growth rate of 15-23%.
- Syndication volume guidance of $3,000-$4,000 million, demonstrating a potential 3-38% increase.
Analysts are also bullish on EFN stock. One analyst believes that EFN stock’s Q2 earnings beat “supports upward momentum.” They consider it a “core holding” for all portfolio managers. The analyst raised the target price for EFN stock to $31, emphasizing its low-risk, double-digit FCF and dividend-growth potential.
Other analysts share this optimism. Two increased their target prices, with one emphasizing Element’s record FCF and share repurchases. Another highlighting the strong quarter and improved visibility.
Bottom line: Is Element Fleet Management stock a good investment?
Considering Element Fleet Management’s impressive earnings growth, promising future outlook, and favourable analyst recommendations, it appears to be a strong investment choice. Moreover, with a 17% increase in stock value since the last earnings report, a 1.91% dividend yield, and a price-to-earnings ratio of 20.29, EFN stock offers a compelling opportunity for investors seeking stability and growth potential in their portfolios. As always, investors should conduct their due diligence and consider their individual financial goals and risk tolerance when making investment decisions.
