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Western Union Stock Continues to Lose Value: Here's Why

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The stock of Western Union Co. (WU - Free Report) seems to have fallen out of favor with investors owing to a number of headwinds plaguing the company. These include softer revenues, forex volatility, macroeconomic woes, and high compliance and investment costs.

These have taken a toll on the company’s share price which has plunged 14% year to date, significantly underperforming the Zacks categorized Financial Transaction Services industry’s gain of 15%.

The company has become been suffering from soft transaction growth in its Consumer to Consumer (C2C) segment which contributes nearly 80% to its total revenues. Low volumes from the Middle East and Africa, and APAC markets due to a decline in oil price have been the main culprits behind the softness.

The stock must have suffered from a bleak flat-to-down low single-digit top-line view due to a strong U.S. dollar, continued softness in oil markets and a number of global economic issues.

The company also is suffering from foreign exchange volatility, given its huge international business. The impact of currency translation, net of hedge benefits, impacted first-quarter 2017 revenues by approximately $30 million as compared with the prior-year quarter. It expects adverse foreign exchange translation to have a 9-cent impact on earnings per share in full-year 2017.

Western Union has also been facing compliance-related issues, and has paid 3.6% of revenues in 2016 as compliance charges. It spent 3.7% in the first quarter of 2017 for the same. The company expects compliance-related charges to be at the high end of the 3.5% to 4% revenue in full-year 2017.

Western Union is also faced with intensifying competition, given the consolidation taking place in the payments industry. The recent acquisition of Xoom by PayPal Holdings, Inc. (PYPL - Free Report) and the ongoing merger between Moneygram International Inc. and Ant Financial, an affiliate of Chinese Alibaba Group Holdings Ltd. (BABA - Free Report) might pose stiff competitive challenges to the company, which commands a premium price in the market by virtue of its brand, reliability and almost monopolistic hold.

Western Union carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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