Balanced View on Western Union - Analyst Blog

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On March 31, 2014, we issued an updated research report on the world's leading money transferor – Western Union Co. WU.

Western Union is a stalwart compared to its peers Moneygram International Inc. MGI and Xoom Corporation XOOM given its strong brand name, deep reach in the U.S, superior customer service, fast penetration within high-growth international markets and wide presence at 515,000 locations in more than 220 countries. Bolstered by such solid fundamentals, Western Union has been posting positive earnings surprises for the past four straight quarters averaging at 6.8%.

Going forward, we expect the company to maintain this strong earnings trend given bright prospects of its key Consumer-to-Consumer business which accounts for more than four-fifth of total revenue. The segment is poised to benefit from an increase in global immigration trends.

Moreover, the company's strategy to lower prices in order to attract customers should help it regain its lost market share. The company has already witnessed transaction growth in markets where it has adopted such approaches.

We also view favorably the progress made by the company in its new age service offering via electronic channels such as online banking, westernunion.com, ATMs and Mobile money transfer. Electronic Channel revenues, which include westernunion.com, digital and account-based money transfer through banks, surged 32% in the fourth quarter and contributed 5% of the company's total revenue. The company is on track to meet its goal of $500 million in revenues from such channels by 2015.

However, the company has been facing compliance-related issues for quite some time. As such, the company is witnessing an increase in compliance expenses which is expected to weigh approximately 3.5% to 4% on revenues in 2014, in turn, eating into the company's earnings. Customer reluctance to remit funds via Western Union given its subjection to compliance-related hurdles may pressurize the company's top line while also affecting its profitability.     

Moreover, Western Union's business is dependent on the global macroeconomic situation. With the major economies of the world still in their recovery phases, remittance volumes may be negatively impacted, leading to restricted earnings.

Other Stocks to Consider

While Western Union retains a Zacks Rank #3 (Hold), a better-ranked stock Euronet Worldwide Inc. EEFT with a Zacks Rank #1 (Strong Buy) is worth considering.
 



EURONET WORLDWD EEFT: Free Stock Analysis Report

MONEYGRAM INTL MGI: Free Stock Analysis Report

WESTERN UNION WU: Free Stock Analysis Report

XOOM CORP XOOM: Free Stock Analysis Report

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