Will Western Union Surprise This Earnings Season? - Analyst Blog

Western Union Co. (WU) is set to report third-quarter 2014 results after the market closes on Oct 30. 

 

In the last quarter, this money transfer company delivered earnings in line with the Zacks Consensus Estimate. However, the average beat for the trailing four quarters is 8.6%.

 

Will Western Union be able to keep its earnings streak alive this quarter? Let's see what factors might have influenced the earnings report this time around.

 

Factors Likely to Influence Q3 Results

 

We believe the quarter's results will be affected by recent pricing reductions in response to a declining market share, increasing global regulatory oversight and growing competition in digital channels. 

 

The company also faces compliance-related challenges. Western Union expects compliance costs to hurt 2014 revenues by approximately 3.5% to 4%. High compliance costs during the quarter could erode its bottom line.

 

Nevertheless, Western Union's strong international business will lead to earnings accretion. More than 80% of its agents are based internationally. Since the company faces less competition outside the U.S., the international segment promises growth. 

 

Moreover, Western Union's attempt to develop its technology offerings like prepaid, westernunion.com and mobile money transfer will generate revenues. 

 

Earnings Whispers

 

Our proven model does not conclusively show that Western Union is likely to beat earnings this quarter. That is because a stock needs to have both a positive  Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. However, that is not the case here as you will see below. 

 

Zacks ESP:  Western Union's Earnings ESP is +2.56%. This is because the Most Accurate estimate is 40 cents and the Zacks Consensus Estimate is pegged at 39 cents.

 

Zacks Rank: Western Union has a Zacks Rank #4 (Sell). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, we cautions against Sell-rated (Rank # 4 or 5) stocks going into an earnings announcement.

 

Other Stocks to Consider

 

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:  

 

MFA Financial, Inc. (MFA) has an Earnings ESP of +5.26% and a Zacks Rank #1 (Strong Buy).

 

United Insurance Holdings Corp. (UIHC) has an Earnings ESP of +2.7% and a Zacks Rank #1. 

 

PennyMac Financial Services, Inc. (PFSI) has an Earnings ESP of +2.13% and Zacks Rank #2 (Buy).