We are reiterating our Neutral recommendation on Western Union Co. (WU). We remain confident on the company’s long-term growth prospects; however, over the near term earnings will remain under pressure due to competitive, regulatory and macroeconomic headwinds.
Western Union’s key business, Consumer-to-Consumer has been performing favorably for the past several years. We believe that this business segment will continue to be attractive as worldwide immigration is expected to continue to increase.
Western Union is also aggressively positioning its Business Solutions segment in the rapidly growing cross-border payments market for small to medium-sized enterprises.
Western Union is expanding internationally and is eyeing the emerging economies of China and India, where the remittance market is still under-penetrated. Another money transfer company, Moneygram International Inc. (MGI) also has an active presence in the Asian region.
Western Union is also aggressively growing its new age technology offerings that include mobile, electronic, online money transfer, etc. The company also offers prepaid card service for money transfer via MasterCard Inc. (MA).
The company has a wide agent network, which has grown rapidly over the past few years, enhancing its global presence. It is bent on achieving 1 million agent locations worldwide. We view that this ongoing investment in the brand and new agent appointments reflects the company’s confidence in its market position.
On a tepid side, this Zacks Rank #4 (Sell) stock is facing compliance-related issues in certain markets such as Mexico and Latin America. This regulatory headwind has caused agents loss and consequent decline in revenue in these regions.
Moreover, Western Union’s business is dependent on the global macroeconomic situation. Since the major economies of the world are still recovering , the remittance volume may be negatively impacted, causing restricted earnings.
For the second quarter the Zacks Consensus Estimates earning per share is 34 cents, down 25.41% year over year. However, the long term earnings growth, however, stands at 9.3%.
While we stay cautious on Western Union, another player – Outerwall Inc. (OUTR) with Zacks Rank #2 (Buy) looks attractive.