NEW YORK (TheStreet) -- Imagine a room filled with some of the nation's brightest Ivy League wunderkinds hovering over their computers. The atmosphere is electric; it's deal time. The quants crunch through exotic financial models, comb through pitch books and conduct valuation analysis on just the most recent in a long train of acquisitions.
Legitimate question. This company doesn't do any marketing or PR. No interviews, ever. It's a quintessential "under the radar" business. The only time you hear from them is on their quarterly conference call. But while you were away, Fleetcor has quietly grown from a small cap in its 2010 IPO to a company worth over $15 billion today.
So what do they do?
Fleetcor issues payment cards (similar to credit or debit cards) to fleet managers who then distribute these cards to drivers to purchase fuel and cover maintenance costs. Customers include business or government entities that own vehicles and rely on ground transportation to do business. By using FleetCor's cards, fleets can better manage, monitor and control their drivers' spending patterns and ultimately increase efficiencies. In fact, its product helps customers reduce fuel expenses by roughly 15% per year. When your biggest cost is fuel, that matters. Meanwhile, by partnering with FleetCor, card-accepting merchants (i.e., "gas stations") can increase their own volume while enhancing customer loyalty. Leveraging its pricing power on both sides of the equation, FleetCor charges subscription and transaction fees to fleets and receives transaction revenue from merchants each time its customers purchase fuel at their location.
I'll let you in on a little secret though. FleetCor is much, much more than just a fleet card provider. It's a card issuer, technology company, investment bank and private equity shop all rolled up into one. Its secret sauce is targeting businesses that have lucrative customer relationships yet are fundamentally undermanaged and finding a way to turnaround these businesses, quickly and efficiently. In a cold, calculated and systematic manner, FleetCor acquires companies, brings them under the hood of its well-oiled machine, strips out inefficiencies, and doubles their profitability within two years. It has done exactly this with all 60 acquisitions it has completed to date, an impeccable track record to say the least.
In order to acquire the talent necessary to execute this strategy, FleetCor hires some of the top Ivy League students away from the Goldman Sachs' of the world and brings them aboard its prestigious in-house takeover team. To complement its internal acumen, its board of directors is peppered with some of the most prominent minds in finance.
Through these acquisitions, FleetCor has cemented its role as the absolute juggernaut in a sprawling industry, one that is expected to surpass $1.5 trillion in purchases this year alone. It is over three times the size of its next largest competitor yet possesses a mere 3% market share. Stop, read that line over again, and try to digest what that means. Couple that with the fact that this company is an acquisition machine and, if you're the remaining 97% of the market, you have got to be terrified. If you can't beat them, join them, I guess.
FleetCor is the manifestation of Warren Buffet's elusive "economic moat," or the competitive advantage one has over other companies in the same industry. This moat is protected by the powerful network effect it has created. This network-based business model means FleetCor's market dominance grows as the company grows, creating a virtuous cycle of increased pricing power, recurring revenue and low churn.
Despite being one of the best market performers of the last five years, Wall Street research analysts have all but shunned this company since its 2010 IPO. When this was a $23 stock, they said it was "vastly overvalued". When it was a $50 stock, "the risk/reward [was] skewed heavily to the downside." When it was $100? "It is difficult to understand why any value-conscious investor would still own shares at these levels." Now at $150, the same pushback remains. When will they learn? It's only money you're losing by betting against them.
I'll admit something. I have what you might call a love affair with this company. I fell in love after I stumbled upon the stock over a year and a half ago, when it was trading at around $45. What makes me gravitate toward this business?
Maybe it's the 14 consecutive "beat and raises" (when earnings exceed expectations and forward guidance is raised). Maybe it's the fact that it wages its battles in the negotiation room, not the public eye. Maybe it's because its operating structure begets cash generation, with 70% fixed costs and 60% margins. Maybe it's because the management team is more disciplined than a Navy SEAL. Maybe it's the fact that its humility and success are of equal magnitude. Perhaps it's the 40% earnings CAGR (average annual growth rate) that it has enjoyed over the past 10 years.
Regardless, what most excites me is the future that lays ahead of them. You can bet this company is still in the early innings of a magnificent, multi-decade growth story. It's your choice if you want to be a viewer or participant. I know which one I'll be.
-- Written by Jack Mohr in New York