We are reiterating our recommendation on
Western Union Co.
) at 'Neutral' prior to its third quarter earnings release
scheduled for October 30, 2012. The Zacks Consensus Estimate
earnings per share (EPS) is pegged at 45 cents, reflecting an
improvement of 12% year over year.
MONEYGRAM INTL (MGI): Free Stock Analysis
WESTERN UNION (WU): Free Stock Analysis Report
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We are optimistic about the company's performance going forward,
given its long-term growth momentum led by strategic investments in
new products, services and technology. However, a rapid growth of
other cheaper money transfer options may lead to competitive
The company is focusing on three main areas - expanding the
existing network and retaining as well as adding new customers to
the consumer money transfer business; creating a digital
infrastructure to drive its electronic channels business; and
developing the B2B segment apart from ensuring successful
integration of the Travelex business.
Western Union's key business - Consumer-to-Consumer (accounts for
more than four-fifth of total revenues) - has been witnessing
growth for the past several years. We believe that this segment
will continue to be attractive as worldwide immigration is expected
to keep increasing.
Another segment, Business Solutions, is rapidly growing its
cross-border payments business for small to medium-sized
enterprises. The acquisitions of Custom House and Travelex have
spread the segment's business in many countries.
Western Union's is aggressively expanding internationally and is
eyeing emerging economies of China and India, where the remittance
market is still under-penetrated. In Asia, the company has further
expanded its network and has approximately 200,000 locations across
China, India and the rest of APAC. Given a superior brand value and
reputation, the company faces lower competition in these regions
compared to the U.S., we expect a growing share of revenue from
these markets in the future.
A wide agent network, actively developing electronic channels and
prepaid cards are other salient features of the company, which will
help it to grow market share going forward.
On the flip side, Western Union's business is dependent on the
global macroeconomic situation, particularly the high levels of
unemployment. Since the major economies of the world are facing
downturns, the remittance volume may be negatively impacted,
causing restricted earnings.
Despite the headwinds, Western Union's solid balance sheet with
good capital management will aid its bottom-line earnings.
Western Union currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Its Peer
MoneyGram International Inc.
) also retains a Zacks #3 Rank. We are also maintaining our
long-term Neutral recommendation on its shares.