Business transitions often drive growth. These shifts can keep companies competitive, whether through rebranding, entering new markets, or expanding services. Change attracts new customers and helps diversify operations, reducing risk.

While challenging, these transitions can redefine a company’s market position, improve profit margins, and open doors to growth that wouldn’t exist otherwise.

Founded initially as Fleetcor, Corpay’s (CPAY) legacy business centered on vehicle payments, catering to companies that manage fleets.

Over time, the company has shifted its focus to corporate payments, rebranding from Fleetcor to reflect this expanded mission.

Today, Corpay’s business spans several payment solutions, including corporate and vehicle payments, lodging, and cross-border transactions.

Despite this shift, vehicle payments still represent half of the company’s revenue, driven by the high margins and value-added services like fuel discounts and expense tracking that benefit fleet operators.

However, Corpay’s vehicle payments segment is closely tied to fuel prices, adding a layer of volatility that the company is actively trying to avoid.

The company’s pivot towards corporate payments to build a less cyclical and more resilient business. This segment, which includes accounts payable automation and risk management tools, has grown at a steady 20% annually.

Corpay’s corporate payments business not only streamlines financial management but also caters to a diverse client base across industries such as healthcare, finance, and manufacturing.

With the potential to generate higher recurring revenue, the corporate payments segment is a key growth driver for the company.

Corpay’s focus on building this segment makes sense as it is less exposed to the cyclical nature of fuel prices and offers broader opportunities for integration with clients’ existing financial systems.

The addition of new features and services within this segment is also likely to attract more clients, boosting customer retention and creating opportunities for cross-selling.

The company is also expanding its presence in electric vehicle (EV) services. The transition to EV-related offerings is expected to reduce reliance on fuel-linked revenues could help lower cyclicality and boost resilience.

These factors enabled Corpay to achieve an 88% Uniform return on assets (ROA) and 28% asset growth.

While the company’s potential is clear, it faces certain risks. North American fleet and lodging revenues have been flat recently.

Additionally, Corpay’s debt load, which increased following the Paymerang acquisition, also presents a risk.

These concerns are reflected by the firm’s 17x Uniform P/E.

While the market remains cautious, Corpay’s diversified payment solutions and global footprint position it well to capitalize on the increasing demand for efficient payment management solutions.

The company’s current valuation, coupled with a diversified portfolio suggests a potential upside.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

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