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Factors Likely to Drive Western Union's (WU) Growth in 2019

Zacks Equity Research

Western Union Co. WU looks well poised for growth in 2019 on the back of its steady investment in digital platform, which has been paying off well. Numerous alliances, pacts and deal renewals have broadened the company’s network in the United States and across the globe.

Although the stock declined 9.8% in a year's time against its industry’s growth of 3.4%, it still represents a good buying opportunity, given numerous tailwinds that should favor the stock price in the coming quarters.

The Zacks Rank #2 (Buy) stock carries a Value Style Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.

Factors to Aid the Company’s Growth

The company has been rapidly developing its digitally initiated money transfer platform, which includes westernunion.com and Mobile Money Transfer. This is the fastest-growing market segment, which is bringing new customers and increased business to Western Union. Revenues from the company’s digital platform have been increasing over the past few quarters.

Western Union’s digital business continued its impressive run, with revenue growth of 23% in the last reported quarter or 20% in constant currency. Also, westernunion.com is becoming an increasingly important part of the company’s business, representing 11% of total money transfer revenues in the quarter, up from 6% recorded just three years ago.

Western Union’s key business, Consumer-to-Consumer (accounting for nearly 80% of the company’s revenues) will remain attractive, as worldwide immigration has been experiencing healthy growth. We expect further improvement in its margins, as soon as technology investment and other cost-reduction initiatives will start paying off. Improvement in cross-border remittance, as well as a strong economy will lead to higher demand for money transfer services and accrue to the segment’s top line.

The company generates solid free cash flow and has a stable track record of returning capital to its shareholders via share buyback and dividend payments. In February, the company increased its quarterly dividend by 9%. The company’s current dividend yield of 4.2% is way higher than the industry’s 0.6%, which makes it all the more attractive to investors.

Zacks Rank and Other Stocks to Consider

Investors interested in the financial transaction services industry might opt for other top-ranked stocks like Cardtronics PLC CATM, Green Dot Corporation GDOT and International Money Express Inc. IMXI. While Cardtronics and Green Dot currently sport a Zacks Rank #1, International Money Express holds a Zacks Rank of 2.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardtronics and Green Dot surpassed earnings estimates in each of the last four reported quarters by 50.3% and 18.4%, respectively.
International Money Express’s 2019 earnings per share are expected to grow 6.6%.

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