Western Union Poised to Gain from Strategic Investments - Analyst Blog

On Nov 20, 2014, we issued an updated research report on the world's leading money transfer company – Western Union Co. (WU). The third quarter saw operating earnings per share (EPS) of 44 cents, ahead of the Zacks Consensus Estimate of 39 cents and up 13% on a year-over-year basis.

 

Western Union's better-than-expected EPS were driven by revenue growth across all its segments, along with tight expense management. 

 

 Western Union is a stalwart among its peers such as Moneygram International Inc. (MGI) and Xoom Corp. (XOOM). Its status is backed by a strong brand name, vast reach in the U.S., superior customer service, fast penetration within high-growth international markets and presence at nearly 500,000 locations in 200 countries, with over 100,000 ATMs. 

 

Going forward, we expect  Western Union to maintain this strong earnings trend given the bright prospects of its key Consumer-to-Consumer business which accounts for a chunk of its total revenue. The segment is poised to benefit from an increase in global immigration trends and is witnessing a rebound in its retail-oriented business which will contribute strongly to revenues in the upcoming quarters. 

 

We also favorably view the progress made by the company in its new-age services through 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 21% in the third quarter. 

 

The company is also planning to make investments in areas such as cost initiatives, digital and mobile innovation, compliance and cybersecurity to drive growth and productivity in the future.

 

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 hurt revenues by approximately 3.5% to 4% in 2014, and lower earnings in turn.

 

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

 

Western Union retains a Zacks Rank #2 (Buy). Another stock worth considering is Fiserv, Inc. (FISV), carrying the same Zacks Rank.