Shares of this payments firm can nearly triple from here, says Impactive's Lauren Taylor Wolfe

Published Thu, Jun 9 20223:25 PM EDTUpdated Thu, Jun 9 20223:35 PM EDT

Shares of business-to-business payments platform Wex could nearly triple by 2025 as the company continues to expand and pounce on opportunities in its three major business segments, Impactive Capital managing partner Lauren Taylor Wolfe said Thursday at the Sohn Investment Conference. At about $174, the stock is currently trading at 13 times forward earnings, its lowest multiple in decades compared to its average of 20 times over the last decade. However, it can reach nearly $500 a share in the next three years, according to Taylor Wolfe. "We see a great opportunity for a double in our base case and a triple in our upside case," she told CNBC following the event. The company, according to Taylor Wolfe, is going to generate about $4.5 billion in capital through free cash flow and debt capacity in the next three years. The money can be used for share repurchasing or mergers and acquisitions across its three major business segments, she said. Wex's success is dependent on its fleet management, corporate payments and travel and health sectors, which are poised to grow in the long term. Taylor Wolfe specifically sees huge revenue opportunities within the fleet segment — which has a decades-long record of "double-digit top and bottom-line growth throughout cycles" —amid the transition to more electric vehicles. "Wex sits in a pole position with access to data and analytics that will drive substantially greater economics per vehicle," she said. "New innovative subscription products and pricing power will drive higher quality recurring revenue streams, potentially more than doubling unit economics." Over the next few years, Taylor Wolfe expects Wex's fleet segment to compound EBITDA in the high single digits and says the business model performs well even during inflationary times. Calculations from Impactive suggest the business is worth Wex's current total enterprise value. Taylor Wolfe also sees value in the company's corporate payments and travel sector, which provides virtual cards and automatic corporate payment services. She expects the business to compound in the "healthy double-digits" over the next three years as travel returns and businesses steer away from cash and checks. Wex's health segment is also well-positioned to ride out inflation and will continue to grow revenue in part due to rising health care costs. At the company's current multiple, this segment trades at a roughly 70% discount to its peer in the space called HealthEquity , she said. "We view this segment as the underappreciated jewel within the Wex enterprise," she said. Meanwhile, expanding its electric vehicle segment to offer more data and analytics to customers can bring in roughly 70% more revenue per vehicle, she said. Shares of Wex are trading up more than 26% this year but down about 15% from a 52-week high of $208.38 a share.