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It has been about a month since the last earnings report for MoneyGram (MGI). Shares have lost about 10.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MoneyGram due for a breakout? 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’s Q4 Earnings Surpass Estimates, Surge Y/Y
MoneyGram reported fourth-quarter 2020 adjusted income of 12 cents per share, which beat the Zacks Consensus Estimate by 50%. The bottom line was also up 1100% year over year.
Earnings gained from strong growth in digital business along with cost saving that aided margins.
The company’s total revenues of $323 million missed the Zack Consensus Estimate by 1% and were almost flat year over year.
Among the components of revenues, fees and other revenues increased 3% to $320.7 million while investment revenues dropped 79% to $2.6 million.
Interest expense of $22.9 million fell 5.8% year over year.
Adjusted EBITDA margin of 20% improved 220 basis points year over year.
Segments in Detail
In the Global Funds Transfer segment, total revenues increased 9.4% year over year to $309.1 million. Within the segment, money transfer revenues grew 4.3% year over year to $298.1 million while Bill payment revenues dropped 20.3% year over year to $11 million. Operating margin improved 710 basis points from the year-ago quarter to 8.9%.
The Financial Paper Products segment reported total revenues of $14.2 million, down 40.8% year over year due to an 18.5% decline in money order revenues and a 64.6% plunge in official check revenues. Operating margin deteriorated 720 bps from the year-ago quarter to 26.1%.
The company ended the quarter with cash and cash equivalents of $196.1 million, up 33.6% from the level at 2019 end.
As of Dec 30, 2020, the company had a payment service obligation of $3.7 billion, up 14.4% from the level at 2019 end.
First-Quarter 2021 Outlook
The company issued its outlook for the first quarter of 2021 assuming that the choppy global economic environment was to persist in the fourth quarter of 2020 as well. Against this backdrop, the company anticipates total revenues of approximately $300 million on the strength of its money transfer business and continued triple-digit cross-border MoneyGram Online growth, partially offset by an estimated $8 million reduction in gross investment revenues. Adjusted EBITDA is likely to be approximately $50 million.
Ripple Deal Update
MoneyGram suspended trading on Ripple's platform over concerns about the latter's litigation with the Securities and Exchange Commission. The company is not planning any benefit from Ripple market development fees in the first quarter of 2021. In the first quarter of 2020, the company realized a net expense benefit of $12.1 million from Ripple market development fees.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -233.33% due to these changes.
At this time, MoneyGram has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise MoneyGram has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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