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Western Union (WU) Up 4.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Western Union (WU). Shares have added about 4.9% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Western Union Misses Q2 Earning Estimates

The Western Union Company reported second-quarter 2019 operating earnings of 45 cents per share, missing the Zacks Consensus Estimate by 6.3%. The same was down 2.2% year over year.

Behind the Headlines

Total revenues of nearly $1.3 billion met the Zacks Consensus Estimate but declined 5% on a year-over-year basis (up 4% on a constant-currency basis). Weakening of Argentine Peso led to a 3% decline in revenues, which was partly offset by positive effects of inflation in the company’s Argentina-based business.

Total operating expense of $1.08 billion was down 4% year over year due to a decline in cost of services.

Adjusted operating margin in the quarter was 20.3% compared with 20.2% in the prior-year period.

Segment Update

Consumer-to-Consumer (C2C)

Revenues of $1.06 billion decreased 1% on a reported basis but was up 1% on a constant-currency basis. Total transactions grew 1%, driven by strength at westernunion.com.

Operating income of $250.2 million declined 6% year over year.
Revenues from westernunion.com C2C improved 18% on a reported basis and 20% on a constant-currency basis. Notably, westernunion.com represented 13% of total C2C revenues in the quarter under review.

Business Solutions

Revenues increased 3% on a normal basis, and 7% on a constant-currency basis year over year to $95.6 million, driven by growth in Asia Pacific and Europe.

The segment reported operating income of $10.5 million, compared with $1.1 million in the year-ago quarter.

Balance Sheet (As of Jun 30, 2019)

Cash and cash equivalents were $1.2 billion, up 2.4% year over year.
Borrowings declined nearly 1% from the year-end levels to $3.7 billion.

Stockholders' equity was $30.2 million, compared with stockholder’s equity deficit of $309.8 million at year-end 2018.

At the end of the quarter, the company generated net cash of $402 million from operations, up 35% year over year.

2019 Guidance Update

The company expects low single-digit revenue growth (on a constant-currency basis), adjusted operating margin of approximately 20%, EPS in a range of $1.7 to $1.8 and cash flow from operating activities of approximately $950 million.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Western Union has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. 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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