We have reiterated our recommendation on Western Union Co. (WU) at Neutral following the fourth-quarter 2012 earnings release. Western Union reported a solid fourth quarter, which included a 20.0% positive earnings surprise.
We remain confident on the company’s long-term growth prospects. However, over the near term, earnings will remain under pressure due to regulatory and macroeconomic headwinds.
Western Union’s key business, Consumer-to-Consumer, has been performing favorably for the past several years. We believe that this business segment will continue to be attractive as worldwide immigration is likely to keep increasing.
Western Union is also aggressively positioning its Business Solutions segment in the rapidly growing cross-border payments market for small to medium-sized enterprises.
Western Union is expanding internationally and is eyeing the emerging economies of China and India, where the remittance market is still under-penetrated. Another money transfer company, Moneygram International Inc. ( MGI) also has an active presence in Asia.
Further, WU is aggressively expanding its new age technology offerings, which include mobile, electronic, and online money transfer among others. The company also offers prepaid card service for money transfer via MasterCard Inc. ( MA)
This Zacks Rank #3 (Hold) company has a wide agent network, which has grown rapidly over the past few years, enhancing its global presence. The company is determined to achieve 1 million agent locations worldwide. We believe that this ongoing investment in the brand and new agents reflects Meredith’s confidence in its market position.
However, Western Union’s business is dependent on the global macroeconomic situation, particularly the high levels of unemployment. Since the major economies of the world are facing downturns, the remittance volume may be negatively impacted, causing restricted earnings.
Following the earnings release, over the last 30 days, 1 of the 17 estimates moved upward, while 12 of 17 estimates moved downward. The downward estimate revisions led to a 2.7% fall in the Zacks Consensus Estimate for full year 2013 to $1.43.
Other financial service provider company H&R Block, Inc. ( HRB) with a Zacks Rank #2 (Buy) is worth considering.
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