Analysts Stay Bearish On Western Union Despite New 52-Week Highs

The Western Union Company WU reported third-quarter results, which sent the stock to a new 52-week high.

The Analysts

Morgan Stanley analyst James Faucette maintains at Underweight with a $20 price target.

Citi analyst Ashwin Shirvaikar maintains at Sell, unchanged $20.50.

Bank of America analyst Jason Kupferberg maintains at Underperform, $21 price target.

Deutsche Bank analyst Bryan Keane maintains at Hold, price target lifted from $22 to $25.

Morgan Stanley: Key Takeaways

Western Union's report includes three key takeaways, Faucette said.

First, WU.com year-over-year growth decelerated from 18% (20% ex-FX) last quarter to 16% and this growth metric is closely followed by investors. As such, a reading short of 20% is likely disappointing but management did highlight cross border revenue grew 25% while white label digital services also rose more than 20%.

Second, management highlighted the pricing environment remains stable, which shows the company's "ability to be front-footed in preserving the tail of its business."

Finally, adjusted operating margins expanded by around 50 basis points in the quarter to 22.3% due to improved operational efficiencies and benefits from hedging. However, management continues to expect 2019 margins to be around 20% which implies additional cost pressures in the fourth quarter.

"Given Western Union's position as the incumbent in a secularly challenged industry, we think the stock will likely be a relative underperformer vs. its Payments peers," the analyst wrote in a note.

Citi: Not Enough Progress

Western Union reported a "better" quarter with modest quarter-over-quarter improvements in constant currency revenue growth, Shirvaikar said. The company saw strength in all three of its business units with the consumer-to-consumer unit drawing most of the attention due to a revenue growth of 2%.

However, management left its full-year earnings outlook unchanged and kept a "wide" 10-cent range, the analyst said. This creates questions if the third-quarter performance is due to timing benefits.

Overall, Western Union is "stepping up its performance" but not enough to warrant the stock's gains so far.

BofA: Consistent With Expectations

Western Union's earnings includes no surprises and was in-line with commentary from management's Investor Day presentation in late September, Kupferberg said. The company also reiterated its 2019 outlook and three-year guidance as "unsurprising and neutral" for the investment outlook.

Deutsche: Strategic Initiatives Helping Margins

Keane said the company's momentum came from strength in digital and third-party white label solutions.

Looking forward management expects white label processing agreements to generate new growth over time after securing processing agreements in Korea and Japan. However, management kept its 2019 guidance unchanged, including a moderation in margins in the fourth quarter.

Price Action

Shares of Western Union hit a new 52-week high of $26.82 Friday and was trading higher by 6.3% at time of publication.