The Western Union Company WU stock is currently trading at a notable discount relative to the Zacks Financial Transaction Services industry. With a forward 12-month price-to-earnings (P/E) ratio of 6.39X, it sits well below the industry average of 22.86X. The company has a Value Score of A.
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In comparison, majorpayment companies such as Mastercard Incorporated MA and Visa Inc. V are way costlier at 30.59X and 24.63X, respectively.
While a discount valuation often presents a potentially profitable opportunity for investors, it is essential to investigate whether the company is facing any internal challenges. A brief analysis is required to determine if WU’s discounted valuation is justified based on its growth prospects and shareholder-value boosting efforts.
Let’s delve deeper.
Western Union, headquartered in Denver, CO, currently has a market cap of $4 billion. The company is set to grow, driven by resilient transaction volumes and strong performance in its Branded Digital business. The Consumer Money Transfer business, bolstered by solid results in Latin America, the Caribbean and North America, will contribute to this momentum.
The Zacks Consensus Estimate pegs WU’s 2024 earnings at $1.77 per share, indicating a 1.7% increase over the previous year. The company has surpassed earnings expectations in three of the last four quartersand met once, achieving an average surprise of 7.1%.
For this year, the revenue estimate for Western Unionstands at approximately $4.2 billion. We expect its Consumer Services business to play a significant role in revenue generation. Our model indicates that revenues from the unit will climb more than 12% year over year in 2024.
The company is expanding its service offerings through strategic partnerships with fintechs and financial institutions. Initiatives like the "Send Now, Pay Later" program, which combines lending and remittances, are expected to boost the company’s market penetration. Its extensive presence across more than 200 countries and territories enhances its global reach and strengthens its competitive position.
These initiatives are vital for stabilizing its financial performance. Fed rate cuts are expected to support transaction volumes, improving cash flow, which dropped over four-fold year-over-year in the first half of 2024. Although it ended the second quarter with $1 billion in cash and equivalents — down 18.6% from year-end 2023 — its ongoing business optimization efforts should boost profitability and cash reserves, allowing continued shareholder returns.
With a dividend yield of 8.03%, well above the industry average of 0.71%, Western Union is attracting investor interest. In the first half of 2024, the company returned $335 million to shareholders ($159 million in dividends and $176 million in buybacks) and still has $172 million available for future repurchases.
Should Investors Take a Chance on the Undervalued WU Stock?
Despite the growth prospects, the company's stock is trading at a discount to its true value. In the past three months, its shares have declined 5.2%, lagging the industry's composite stock growth of 8.2%, creating a better entry point for investors.
Mastercard and Visa have surpassed WU, achieving gains of 10.5% and 3.1%, respectively, during the same timeframe.
WU’s 3-Month Price Performance Comparison
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It appears that Western Union has the potential to outperform the industry once the stock market begins to acknowledge its true value. Notably, major brokers have increased WU’s short-term price target by 10.76% from its recent closing price of $11.80, with the highest target set at $18, indicating a potential upside of 52.5%. Consequently, investors stand to benefit from this upward price trend in the interim.
Image Source: Zacks Investment Research
Western Union currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
