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Western Union Co. (WU)

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We are reiterating our recommendation on the shares of Western Union Co. (WU) at Outperform prior to its fourth quarter earnings release slated on February 7, 2012. For the first nine months of 2011, Western Union has shown a solid earnings performance.

In our view, the company is poised for long-term growth, which is validated by the combination of demographic trends, new market opportunities and its advantages of scale. Several new initiatives like B2B, prepaid, banking, mobile and also poise the company well for long-term growth. The company also benefits from a continued strong cash flow, allowing shareholders to be rewarded with acquisitions, share buybacks and increased dividends.

Our six-month target price of $23.00 equates to about 12.8x our earnings estimate for 2012. We view the annual dividend of $0.32 per common share as secure, implying an expected return of about 23% over that period. This is consistent with our Outperform recommendation on the stock.

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