We are downgrading our recommendation on the shares of
Western Union Co.
) to 'Underperform' from 'Neutral' following the company's
third-quarter earnings release, in which it trimmed the full year
2012 earnings expectations. The company slashed its earnings
guidance to a range of $1.60-$1.63 per share from a previous
estimate of $1.68-$1.72 per share. Moreover, a stiff competition
and weak global economy is taking a toll on the company
Western Unionis facing compliance-related issues, particularly
those connected to its Southwest Border agreement. The biggest
impact from compliance-related changes has been in Mexico and
Latin America. In Mexico, overall revenue decreased over 20%
during the quarter, due to declines in our Vigo and Orlandi
Western Union ended its relationships with over 7,000 Vigo
agent locations that could not meet the new compliance
requirements. The company has also experienced operational
challenges from related system implementations for its Vigo brand
in Latin America.
Western Union has also recently witnessed challenges in its
core retail money transfer business in certain key markets. It
has reduced prices in the face of rigid competition in those
corridors. These actions have negatively impacted its revenues in
some markets, while at the same time these increased its
The company is also facing strong competition from electronic
channels of money transfer. Though the company is aggressively
expanding its electronic channel at present, it has relatively
smaller presence in this segment.
The effect of soft global economic condition was seen in
Western Union's revenue, which increased by a mere 1% year over
year. The company's retail money transfer business was also
impacted by compliance-related changes in a number of markets and
competitive pricing pressures in certain corridors.
On the other hand, Western Union is also facing management
issues. The president of Global Consumer Financial Services along
with Stewart Stockdale has left the company. The company is also
planning to reduce its overall headcount as well as migrate and
consolidate positions from various facilities.
Given a host of headwinds, we expect the stock to remain under
pressure in the near term. However, the company's strong brand
name along with the sturdy financial position will help it
overcome the hurdles over the long term.
Western Union currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Peer
Moneygram International Inc.
), also currently retains a Zacks #3 Rank, which translates into
a short-term Hold rating.
MONEYGRAM INTL (MGI): Free Stock Analysis
WESTERN UNION (WU): Free Stock Analysis
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