Quarterly results and earnings estimates look great for MoneyGram International, Inc. (MGI - Analyst Report). But why are shares are tanking and do they deserve the thrashing?
MoneyGram is a payment services company that provides money transfers, money orders, and other solutions for retail customers as well as institutions. The company has a over 250,000 locations worldwide.
On Oct 27 MoneyGram met earnings expectations, by reporting $0.24 per share, snapping a 2-quarter streak of misses. Net income was up 58%, to $15.8 million.
Total revenues were up 10%, to $322 million. Analysts were most impressed with the significant improvement in margins.
Even though MoneyGram merely met expectations, the margin expansion was enough to raise estimates. This year's Zacks Consensus is up 8 cents, to $1.09, on the news and was up another 17 cents prior to the release.
Forecasts for 2012 are averaging $1.24, up 12 cents on the earnings report. Last year the company has a significant loss.
Shares of MGI are trading at an attractive 15 times forward estimates, which puts the PEG ratio at 1.0. So, the growth is reasonably priced. The price to sales is near 0.7 times.
There is a lot of risk in this holding though. Shares are fresh of a 1-for-8 reverse split because they were facing delisting.
Investors selling 11.25 million shares on the open market also weighed the stock down. But, while secondary offerings usually are a bad sign, this is coming from shareholders and not treasury stock. So, there is no dilution and MGI is not receiving the proceeds.
You can see below that shares were absolutely battered on the developments. But, do they really deserve that kind of punishment? Some might say it looks oversold and makes for a nice buying opportunity.
Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service