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Euronet Vs. Western Union: A Pair Trade From Goldman Sachs

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Euronet Vs. Western Union: A Pair Trade From Goldman Sachs
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Goldman Sachs is recommending cashing in on ATMs and cashing out of money transfer with a pair trade

Goldman Sachs analyst Lara Fourman initiated coverage of Euronet Worldwide, Inc. (NASDAQ: EEFT) with a Buy rating, while the analyst assumed coverage of The Western Union Company (NYSE: WU) with a Sell.

Fourman has a 12-month price target of $110 for Euronet, suggesting 20-percent upside from current levels, while she has a $17 price target for Western Union, a 12-percent downside from current levels.

Street Underestimating Euronet's Revenue Growth?

The Street is underestimating Euronet's revenue growth in 2018, Fourman said. The analyst's estimates are about 2.4 percent and 2.9 percent, respectively, above the Street for 2018 and 2019.

The Street is not fully appreciating the resilience of Euronet's ATM growth strategy and the turnaround of its prepaid card business, according to Goldman, and the firm expects shares to move higher on upward revisions to estimates over the next year.

See also: Alibaba's Ma Really Wants To Buy MoneyGram But Will It Be Approved?

"The recent pullback in shares over the last two months (EEFT -5 percent vs. S&P +4 percent) also makes for an attractive entry point," Fourman said. 

Industry Consolidation, Competition Pose Risk To Western Union

Industry consolidation and competitive pricing pressure pose risk to earnings per share, and in turn the share price of Western Union, Fourman said. That said, the analyst said the company's execution is improving due to cost savings initiatives and competitive digital offering.

If Moneygram International Inc (NASDAQ: MGI) is acquired by Alibaba Group Holding Ltd (NYSE: BABA)'s Ant Financial unit, Goldman projects over 20 percent of Western Union's earnings per share to be at risk from lower remittance pricing.

"We do not think this greater pricing pressure is appropriately captured in Western Union's multiple," Fourman said. 

The Price Action

Euronet shares are up about 27 percent year-to-date, while Western Union shares have made a 10-percent retreat. 

Related Link:

Moneygram Stolen From Alibaba? Euronet Makes Higher Offer

Latest Ratings for WU

DateFirmActionFromTo
Dec 2018Keefe Bruyette & WoodsInitiates Coverage OnMarket Perform
Nov 2018BarclaysInitiates Coverage OnUnderweight
Nov 2018Wells FargoMaintainsMarket PerformMarket Perform

View More Analyst Ratings for WU
View the Latest Analyst Ratings

Posted-In: ATM Goldman Sachs Lara Fourman money transferAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

 

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Latest Ratings

StockFirmActionPT
MOSJP MorganDowngrades33.0
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TVPTImperial CapitalDowngrades15.8
ACORGoldman SachsDowngrades10.0
APTIJefferiesDowngrades38.0
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