UPDATE: J.P. Morgan Downgrades WEX on More Modest Outlook

In a report published Wednesday, J.P. Morgan analyst Tien-tsin Huang downgraded WEX (NYSE: WEX) from Neutral to Underweight, but raised the price target from $77.00 to $86.00.

In the report, J.P. Morgan noted, “We are downgrading WEX to Underweight from Neutral as we believe shares have gotten ahead of themselves as it appears investors are projecting FleetCor type EPS growth and positive earnings revisions (which have been largely fueled by acquisitions) onto WEX. While WEX and FleetCor both play in the fleet fuel card space, their stated growth objectives and strategies are different. WEX has taken an organic approach to growing its non-fleet businesses and is generally less acquisitive than FleetCor (FLT has earmarked ~$900M for acquisitions over the next three years), which has translated to considerably slower EPS growth over the past two years (WEX's compounded EPS growth rate from 2011 to 2013 lags FLT's by nearly 24 points). With WEX trading 18 times our FY14 estimates, a four-turn premium to its average next twelve month forward multiple since 2010, and facing tough fuel price and credit loss compares, soft underlying macro trends and headwinds created by the MasterCard/Visa interchange litigation settlement ($0.07 EPS drag in 2H13), we see limited share price appreciation. The primary risks to our Underweight rating are a sharp rise in gas prices and/or WEX completing a materially accretive acquisition (management highlighted several potential acquisitions in the pipeline on their 1Q13 earnings call). We may become more constructive on a pull-back.”

WEX closed on Tuesday at $88.49.