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4 Reasons to Stay Away from Western Union (WU) Stock Now
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The money transfer industry is growing continuously with increased demand for money remittance due to globalization. The industry is also witnessing a rapid shift from physical money transfer to electronic money transfer. A number of companies operate in this industry. Given its superior brand name and a vast global network with growing electronic business, Western Union Co. (WU - Free Report) is one of the leaders in this industry.
Despite this, shares of Western Union have underperformed. Over the past one year, Western Union shares gained a mere 1.8% faring poorly against15.8% growth for the Zacks categorized Financial Transaction Servicesindustry. We see limited upside for the Zacks Rank #4 (Sell) stock in the near term given several challenges.
Below we point out some facts troubling the stock:
Weak Guidance and Decline in Earnings Estimates: For 2017, management anticipates constant-currency revenues to grow at a low single-digit rate (versus 4% in 2015 and 3% in 2016), and anticipates adjusted EPS of $1.63–$1.75, which includes about of 9 cents of foreign exchange headwinds. The company has witnessed a 2.9% decline in the Zacks Consensus Estimate for earnings in 2017 to $1.68 per share over the past 30 days. It also translates into a year-over-year decline of 4.04%.
Global Headwinds: The company continues to operate amid several global economic headwinds, including foreign exchange volatility, limiting its profitability. Remittance flows from the oil producing countries will continue to be affected by the softness in oil price environment, thereby hurting revenues in the Middle East and Africa as well as part of the Asia Pacific region. Notably, management expects the overall macro environment in 2017 to be largely similar to 2016, with persistent challenges, including strengthening of the U.S. dollar, soft economies in oil producing nations and an uncertain geopolitical environment. These headwinds will exert pressure on the company’s top line.
High Compliance Costs: The company continues to face an increase in compliance costs. It is expected to represent the upper end of 3.5% to 4.0% of revenue in 2017 (versus 3.6% in 2016). It increased from $180 million in 2014 to approximately $195 million in 2016.
Overvalued - Western Union’s valuation looks stretched when compared with its industry average. Looking at the company’s price-to-book ratio, which is the best multiple for valuing companies in Financial Transaction Services industry because of large variations in their earnings results from one quarter to the next, investors might not want to pay any further premium. The company currently has a trailing 12-month P/B ratio of 10.66, which is higher than the industry range of 4.44
Also, the company is expected to grow at a rate of 5.10% for the next five years which is lower than industry growth rate of 11.30. The past five years’ growth rate of 2.10% compares unfavorably with the industry growth rate of 13.8%.
Envestnet carries a VGM score B and surpassed earnings estimates in the last reported quarter by 12.5%.
Fiserv beat estimates in two of the last four reported quarters with an average surprise of 1.2%.
Vantiv beat earnings estimate in three out of the last four quarters with an average surprise of 3.7%.
More Stock News: 8 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.
A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>
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4 Reasons to Stay Away from Western Union (WU) Stock Now
The money transfer industry is growing continuously with increased demand for money remittance due to globalization. The industry is also witnessing a rapid shift from physical money transfer to electronic money transfer. A number of companies operate in this industry. Given its superior brand name and a vast global network with growing electronic business, Western Union Co. (WU - Free Report) is one of the leaders in this industry.
Despite this, shares of Western Union have underperformed. Over the past one year, Western Union shares gained a mere 1.8% faring poorly against15.8% growth for the Zacks categorized Financial Transaction Services industry. We see limited upside for the Zacks Rank #4 (Sell) stock in the near term given several challenges.
Below we point out some facts troubling the stock:
Weak Guidance and Decline in Earnings Estimates: For 2017, management anticipates constant-currency revenues to grow at a low single-digit rate (versus 4% in 2015 and 3% in 2016), and anticipates adjusted EPS of $1.63–$1.75, which includes about of 9 cents of foreign exchange headwinds. The company has witnessed a 2.9% decline in the Zacks Consensus Estimate for earnings in 2017 to $1.68 per share over the past 30 days. It also translates into a year-over-year decline of 4.04%.
Global Headwinds: The company continues to operate amid several global economic headwinds, including foreign exchange volatility, limiting its profitability. Remittance flows from the oil producing countries will continue to be affected by the softness in oil price environment, thereby hurting revenues in the Middle East and Africa as well as part of the Asia Pacific region. Notably, management expects the overall macro environment in 2017 to be largely similar to 2016, with persistent challenges, including strengthening of the U.S. dollar, soft economies in oil producing nations and an uncertain geopolitical environment. These headwinds will exert pressure on the company’s top line.
High Compliance Costs: The company continues to face an increase in compliance costs. It is expected to represent the upper end of 3.5% to 4.0% of revenue in 2017 (versus 3.6% in 2016). It increased from $180 million in 2014 to approximately $195 million in 2016.
Overvalued - Western Union’s valuation looks stretched when compared with its industry average. Looking at the company’s price-to-book ratio, which is the best multiple for valuing companies in Financial Transaction Services industry because of large variations in their earnings results from one quarter to the next, investors might not want to pay any further premium. The company currently has a trailing 12-month P/B ratio of 10.66, which is higher than the industry range of 4.44
Also, the company is expected to grow at a rate of 5.10% for the next five years which is lower than industry growth rate of 11.30. The past five years’ growth rate of 2.10% compares unfavorably with the industry growth rate of 13.8%.
Other Stocks
Some better-ranked stocks are Envestnet, Inc. (ENV - Free Report) , Fiserv, Inc. and Vantiv, Inc. . Each of these stocks carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Envestnet carries a VGM score B and surpassed earnings estimates in the last reported quarter by 12.5%.
Fiserv beat estimates in two of the last four reported quarters with an average surprise of 1.2%.
Vantiv beat earnings estimate in three out of the last four quarters with an average surprise of 3.7%.
More Stock News: 8 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.
A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>