Western Union Held in Balance
On May 27, 2014, we issued an updated research report on the world’s leading money transfer company, Western Union Co. (WU). The company reported first-quarter 2014 operating earnings of 37 cents per share, a couple of pennies ahead of the Zacks Consensus Estimate but in line with the year-ago quarter number.
Western Union is a stalwart among its peers such as Moneygram International Inc. (MGI) and Xoom Corp. (XOOM) given its strong brand name, deep reach in the U.S., superior customer service, fast penetration within high-growth international markets and wide presence at 515,000 locations in more than 220 countries. Bolstered by such solid fundamentals, Western Union has been posting positive earnings surprises for the past four straight quarters averaging at 7.7%.
Going forward, we expect Western Union to maintain this strong earnings trend given bright prospects of its key Consumer-to-Consumer business which accounts for more than four-fifth of its total revenue. The segment is poised to benefit from an increase in global immigration trends and is witnessing a rebound in its retail-oriented business which will bring strong revenue growth in the upcoming quarters.
We also view favorably the progress made by the company in its new age service offering via electronic channels such as online banking, westernunion.com, ATMs and Mobile money transfer. Electronic Channel revenues, which include westernunion.com, digital and account-based money transfer through banks, surged 36% in the first quarter and contributed 5% of the company’s total revenue. The company is on track to meet its goal of $500 million in revenues from such channels by 2015.
However, the company has been facing compliance-related issues for quite some time. As such, the company is witnessing an increase in compliance expenses which is expected to weigh approximately 3.5% to 4% on revenues in 2014, in turn, eating into the company’s earnings. Customer reluctance to remit funds via Western Union given its subjection to compliance-related hurdles may put pressure on the company’s top line while affecting its profitability.
Moreover, Western Union’s business is dependent on the global economy. With the major economies of the world still in their recovery phases, remittance volumes may be negatively impacted, leading to restricted earnings.
Other Stocks to Consider
While Western Union retains a Zacks Rank #3 (Hold), a better-ranked stock Euronet Worldwide Inc. (EEFT) with a Zacks Rank #2 (Buy) is worth considering.
Read the Full Research Report on WU
Read the Full Research Report on XOOM
Read the Full Research Report on MGI
Read the Full Research Report on EEFT
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