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MoneyGram (MGI) Up 64% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for MoneyGram (MGI). Shares have added about 64% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MoneyGram due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

MoneyGram Q2 Earnings Beat Estimates, Revenues Miss

MoneyGram International Inc. posted second-quarter earnings of 12 cents per share, beating the Zacks Consensus Estimate by 50%, but were down 43% year over year.

The company’s total revenue of $324 million declined 13.6% year over year and missed the Zacks Consensus Estimate by 5.2%.

The company’s result suffered from slower U.S. outbound transaction along with stiff competition in the domestic market. This was partly offset by higher revenues from digital platform, growth in many key corridors led by a sequential increase in active, returning and new customers.

Among the components of revenues, fees and other revenues decreased 53% to $309.3 million, while investment revenues increased 2.4% to $14.5 million.

Adjusted EBITDA of $54.3 million declined 9.2% year over year.

Adjusted EBITDA margin of 16.8% declined 80 basis points year over year.

Total operating expenses declined by 55% year over year to $309.5 million.

Segment Details

In the Global Funds Transfer segment, money transfer revenues decreased 47.5% year over year to $282.2 million. Bill payment revenues were also down by 4.5% year over year to $15 million. Adjusted operating margin declined 50 basis points from the year-ago quarter to 39.8%.
Total digital solutions, which include MoneyGram.com, represented 16% of total money transfer revenue.

The Financial Paper Products segment reported total revenue of $26.6 million, which grew 1.2 year over year due to 1.8% increase in official check revenues, partly offset by 0.6% decline in money order revenues.

Adjusted operating margin improved 550 basis points from the year-ago quarter to 39.8%.

Liquidity

During the quarter, the company refinanced its first lien debt by $645 four-year term loan, extended its revolving credit agreement by $35 million, and added a tranche of second lien debt of $245 million.

During the reported quarter, Ripple made an investment in MoneyGram, per a commercial agreement, by infusing equity of $30 million. The agreement allows MoneyGram to utilize Ripple's xRapid blockchain product, as well as XRP, Ripple's cryptocurrency, to facilitate cross-border settlement. This transaction is expected to reduce working capital needs and generate additional earnings and cash flow for the company.

MoneyGram also reduced its pension liability of $74.3 million by selling its obligations to an insurance company for $1.2 million. It also recognized a non-cash charge of $31.3 million

As of Jun 30, 2019, MoneyGram had cash and cash equivalents of $133.5 million, down 8.2% from year-end 2018 levels. The company’s total assets were $4.4 billion, up 2.1% from year-end 2018 levels.

Adjusted free cash flow for the quarter was $20 million, down 7.4% year over year.

2019 Guidance Update  

The company slashed down its earlier provided guidance. It now expects revenues to decline by nearly 8% compared with the previous estimate of 2% to 4% de-growth. Adjusted EBITDA is expected to decline approximately 12% (versus 8% to 12% earlier).

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -57.14% due to these changes.

VGM Scores

Currently, MoneyGram has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, MoneyGram has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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