Western Union Stock Continues to Lose Value: Here's Why
The stock of Western Union Co. WU seems to have fallen out of favor with investors owing to a number of headwinds plaguing the company. These include softer revenues, forex volatility, macroeconomic woes, and high compliance and investment costs.
These have taken a toll on the company’s share price which has plunged 14% year to date, significantly underperforming the Zacks categorized Financial Transaction Services industry’s gain of 15%.
The company has become been suffering from soft transaction growth in its Consumer to Consumer (C2C) segment which contributes nearly 80% to its total revenues. Low volumes from the Middle East and Africa, and APAC markets due to a decline in oil price have been the main culprits behind the softness.
The stock must have suffered from a bleak flat-to-down low single-digit top-line view due to a strong U.S. dollar, continued softness in oil markets and a number of global economic issues.
The company also is suffering from foreign exchange volatility, given its huge international business. The impact of currency translation, net of hedge benefits, impacted first-quarter 2017 revenues by approximately $30 million as compared with the prior-year quarter. It expects adverse foreign exchange translation to have a 9-cent impact on earnings per share in full-year 2017.
Western Union has also been facing compliance-related issues, and has paid 3.6% of revenues in 2016 as compliance charges. It spent 3.7% in the first quarter of 2017 for the same. The company expects compliance-related charges to be at the high end of the 3.5% to 4% revenue in full-year 2017.
Western Union is also faced with intensifying competition, given the consolidation taking place in the payments industry. The recent acquisition of Xoom by PayPal Holdings, Inc. PYPL and the ongoing merger between Moneygram International Inc. MGI and Ant Financial, an affiliate of Chinese Alibaba Group Holdings Ltd. BABA might pose stiff competitive challenges to the company, which commands a premium price in the market by virtue of its brand, reliability and almost monopolistic hold.
Western Union carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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