I think this valuation is absurd. The shares are back down to where I bought them. The Mexican infrastructure spend is still pending - it has not been cancelled - and if you annualize 34 cents per share you get a PE of 5. I've done great DD and I'm aware that earnings are more volatile than that, but still. This company has been in business since the 1940s and it is strong and profitable, yet trades like JCPenney. The reasons are Ukraine, Turkey, Thailand - nothing to do with Mexico at all. Even an implosion in China would have little impact on Mexico. I'm so tired of emerging markets being traded as an undifferentiated basket by brainless funds!
I bet there's support at zero! This lead pig is going to zero! Yeah! Zero! Yeah! Like a lead pig! :-p
And a close at the HOD. Like this takedown isn't totally artificial. Selling below 11 PE.
We have another Nostradamus on this board.
Definitely holding through earnings. I expect a strong Q on pricing and volume and final compliance cost projections.
I read the text of the Citi DG - the analyst's take. I was unimpressed. The downgrade text continued the analyst tradition of taking old news and making it seem like it is next quarter's news. I already know that Western Union has moved past the issues itemized in the DG.
Why would revenue risks to compliance be unique to Western Union? In which money transfer space does regulatory compliance not operate? If the sender switches to a competitor, he will find the same compliance requirements.
IMHO the CFO was canned because of the unexpected size and poor communication around compliance cost increases. The CEO probably thought he had been made to look bad for investors. I don't think there is anything else happening.
I see an EPS beat and a guidance upgrade at next EPS. 37 cents + 36 cents + 39 cents = $1.12. Pick a number for 4Q and call it 38 cents, that's $1.50 (I don't think 32 cents is a realistic estimate even with additional compliance expense). The money transfer market is estimated to be growing at 7% annually. That would cover the compliance cost increase. But in my opinion, WU is growing share faster than the market - 2Q and 3Q results show this.
Note that 39 cents was the EPS number in 3Q when all pricing reductions were fully implemented - yet WU grew faster than the market even in non-pricing-reduced corridors! "Walgreens, China, India" investors.
Thanks Crim. I agree that WU does not need debt restructuring - management has certainly not mentioned it. WU is rolling over debt when debt comes due and recently showed its ability to do just that - at a savings. There might be more savings in store - it depends on how long rates stay low. Given how cash-productive WU is, I am not surprised that its lenders would be willing to roll over debt.
My assumed share count is 550 M (the actual share figure isn't far enough from 550 M to matter).
Management has a little bit of gas left in the existing share repurchase tank but has made clear it won't be renewed (anytime soon). Pretty sure 550 M is going to be the number for the foreseeable.
we've seen this before.
Anyway - no one is fooled by the orchestrated walkdowns. The volume spiked at 16.40. I bought in far lower - and by now, my gains are long term! :-)
You changed the subject and didn't answer my question about the (fake) "restructuring charge."
Here's the data we know:
MRQ 39 cents with pricing cuts on full-bore. Competitor Xoom guided to *revenue* decline (forget profit, Xoom hardly has any). It looks to me like the headwinds are faced by WU's competition, because WU web is way bigger than Xoom total and Xoom revenue is smaller than WU compliance costs! Transactions, other performance metrics uptrending.
Management estimate of compliance cost penalty is: 2.5 cents to 5 cents per Q. This is disclosed. Results: Profits flat for year. I suspect that's a severe sandbag, but even if it's not. $1.50 per year (to go with your estimate) is 37.5 cents per Q.
So where do the analysts get consensus 31 cents? That's my question. That's not flat profits for the year, that's a profit breakdown. Anyway, I'm certainly holding through EPS, because I think they will be a blowout beat with revised projections to the upside.
OK - here's your math: We agree on compliance costs, which (if you do the math) work out to 10 to 20 cents per share per year, which is 2.5 to 5.0 cents per share per Q. Price cuts from last year were in full force in 3Q, when EPS was 39 cents. I don't see any restructuring charge - you just threw that in there. The potential is for upside surprise as management was probably conservative with the compliance costs. 39 - 5 is 34 and that is with full price cuts remaining in effect (contrary to management plan). How do you get to 31 or 32?
31 or 32 cents per share?
The compliance cost increase will impact WU earnings by 10 to 20 cents per share per year, which is 2.5 to 5 cents per share per Q. (Source: management statements in last CC, fairly simple DD arithmetic against WU financials). The abrupt presentation of this cost increase, combined with the CFO departure, gave the whole announcement the air of something not fully anticipated or communicated internally. This suggests that management has been very conservative (self-penalizing) in its cost estimate announcement.
Let's assume worst-case as defined by management. 32 cents plus 5 cents is 37 cents (profit before that cost is incurred) which would be a middling to lackluster Q. MRQ was 39 cents with all the pricing cuts active! But WU performance has been overall uptrending since the pricing action, indeed despite the pricing action. So analysts are predicting a breakdown in earnings PLUS the maximum end of extra compliance expense. I just don't think that level of double-whammy pessimism is justified, given recent performance.
Profits for 2013 are likely to be about 1.50 per share. That's 37.5 cents per Q. I don't think management would have predicted flat profits for 2014 if results were going to start at 31 cents.
The number I've read associated with Mexican public works spending is USD 315 B over 6 years. This is very BOTE, but that's 6 B to 10 B in revenue for ICA over that timeframe, or at least 1 B per year in additional revenue, plus whatever knocks on. That's at least roughly a 30% profit boost per year throughout that timeframe. Plus whatever the oil DFI brings. I could easily be off but this is well possible and not a wildly optimistic scenario. At the optimistic end, we're talking like "near-doubled profits for many years."