Western Union (WU) Up 17.6% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Western Union (WU). Shares have added about 17.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Western Union 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.

Western Union Q1 Earnings Beat Estimates

The Western Union operating earnings of 44 cents per share surpassed the Zacks Consensus Estimate by 7.32% and also grew 12.8% year over year.

Better-than-expected bottom line was owing to productivity savings, lower compensation expense, a lower effective tax rate and fewer shares outstanding, partially offset by the divestitures of Speedpay and Paymap in May 2019.

Behind the Headlines

Total revenues of $1.19 billion missed the Zacks Consensus Estimate by 1.96% and also dropped 11% year over year on a reported basis and 1% on constant currency basis. Weakening of Argentine Peso caused a 3% slip in revenues, partly offset by the 1% positive effect of inflation on the company’s Argentina-based business.

Total expenses of $0.96 billion were down 12% year over year due to a decline in cost of services and selling, general and administrative expenses.

Segment Update

Consumer-to-Consumer (C2C)

Revenues of $1.02 billion declined 4% year over year on a reported basis and 3% on constant-currency basis. Total transactions dipped 3%. Decline was due to lower cross-border sends originated in Europe, the United States and the Asia Pacific, partially offset by revenue gains in the Middle East.

Operating income of $209.9 million decreased 10% year over year. Operating margin contracted 140 basis points year over year to 20.7%.
Revenues from westernunion.com C2C improved 21% on a reported basis and 22% in constant currency. Notably, digital money transfer revenues represented 16% of total C2C revenues in the reported quarter.

Business Solutions

Revenues of $98.4 million inched up3% on a reported basis and 5% on constant currency, driven by a strong performance in foreign exchange hedging.

The segment reported operating income of $13.9 million, up 61% year over year. Operating margin soared 510 basis points year over year to 14.1%.

Balance Sheet (as of Mar 31, 2020)

Cash and cash equivalents were $1.07 billion, down 26% from  the level at 2019 end.

Borrowings declined nearly 4.9% to $3.07 billion from the level at 2019 end.

Stockholders' equity was a deficit of $149.7 million compared with a deficit of $39.5 million at the end of 2019.

The company generated net cash of $112.4 million from operations, down 53% year over year.

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 -6.15% due to these changes.

VGM Scores

Currently, Western Union has an average Growth Score of C, though it is lagging a bit 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 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 these revisions indicates a downward shift. Notably, Western Union has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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