Western Union Analysts Review Q1 Miss; Mizuho Calls Stock 'Value Trap'

Cross-border and cross-currency money movement company The Western Union Company WU reported Tuesday afternoon with first-quarter results that included revenue and EPS that  fell short of expectations.

The Analysts

Mizuho Securities' Thomas McCrohan maintained a Neutral rating on Western Union with an unchanged $17 price target.

RBC Capital Market's Daniel Perlin maintained a Sector Perform rating on Western Union with an unchanged $20 price target.

Mizuho: C2C Growth Weakening 

Western Union's revenue of $1.337 billion missed expectations of $1.363 billion, while EPS of 39 cents per share missed expectations of 43 cents per share and fell 12.2 percent from last year, McCrohan said in a Wednesday note.

In addition, operating margins of 18.8 percent fell 28 basis points from a year ago due to higher acquisition and divestiture expenses.

The company's core consumer-to-consumer segment accounts for 79 percent of total revenue, and revenue growth decelerated from 1 percent in the fourth quarter to flat in the first quarter, the analyst said.

The slowdown may be due to the ongoing negative impact of last year's price reduction and the rollback of planned price increases in certain European and North American markets, McCrohan said. 

Western Union's stock looks like a "value-trap" and warrants a multiple below its peers, he said.

Mizuho's research firm's $17 price target is based on 9.2 times fiscal 2020 EPS estimates of $1.85, which is also short of the three-year average PE of 10.6 times.

RBC Says Speedpay Sale Dilutive

Western Union is expected to soon close the announced sale of its domestic bill payment business Speedpay, Perlin said in a Tuesday note.

The company sold the business — which accounted for $350 million in revenue and $90 million of EBITDA last year — for $750 million. 

The sale of Speedpay, along with the divestiture of the smaller mortgage payment solution company Paymap ($15 million in annual revenue) is expected to be dilutive by 10 cents to EPS in 2019 and 2020 after adjusting for management's plan to use the proceeds to lower debt and buyback its stock, according to Mizuho. 

Price Action

Western Union shares were trading down slightly at $19.18 late in Wednesday's session. 

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