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Western Union's Digital Drives, Solid Economy Bode Well

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Western Union Co. (WU - Free Report) , one of the world’s leading money remittance companies, seems poised for long-term growth on its steady investment in digital platform, which has been paying off well. Numerous alliances, pacts and deal renewals have also broadened the company’s network in the United States and across the globe.

Digitally initiated money transfer, which includes westernunion.com and Mobile Money Transfer, is the fastest-growing market segment, fetching new customers and business growth to Western Union. Revenues from the company’s digital platform have been increasing for the past many quarters.

The company’s digital business continued its impressive run with 23% revenue rise in the last reported quarter of 2018 or 20% on constant currency basis. And westernunion.com is increasingly becoming important to the company’s business, accounting for 11% of total money transfer revenues in the quarter, up from 6% just three years ago.

Digital expansion is a priority and Western Union expects to expand westernunion.com to new countries this year with a firm focus on mobile. A significant progress in its global digital initiatives should further drive revenues on this platform.

Western Union’s key business Consumer-to-Consumer (contributing to nearly 80% of the company’s revenues) will remains a big drawas worldwide immigration has been experiencing healthy growth. We expect further improvement in margins as technology investment and other cost-reduction initiatives benefit the stock over time. Rise in cross-border remittance and a thriving economy will lead to higher demand for money transfer services as well as accrue to the segment’s top line.

The company generates solid free cash flow and boasts a stable track record of returning capital to shareholders via share buyback and dividend payments. Recently , the company hiked its quarterly dividend by 8.6%. Its current dividend yield of 3.7% is way higher than the industry average of 0.6%.

The company’s return on equity (ROE) of 699% remains much above the industry’s 39% tally, reflecting is tactical efficiency in using shareholders’ funds. Moreover, the company’s ROE has grown steadily since 2014.

In six months’ time, the stock has gained 6.8% compared with the industry’s rally of 16.7%. The primary causes behind this underperformance can be attributed to weakness in the company’s Business Solutions segment, stiff competition in the U.S markets, high compliance and heavy investment costs.

 

Western Union carries a Zacks Rank # 3 (Hold). Investors interested in the financial transaction services industry might consider a few better-ranked stocks like Cardtronics PLC (CATM - Free Report) , Mastercard Incorporated (MA - Free Report) and Global Payments Inc. (GPN - Free Report) .

Cardtronics offers automated consumer financial services through its network of automated teller machines and multi-function financial services kiosks. Sporting a Zacks Rank #1 (Strong Buy), the company managed to pull off an average four-quarter positive surprise of 27.17%. You can see the complete list of today’s Zacks #1 Rank stocks here.


Mastercard provides transaction processing and other payment-related products and services in the United States and internationally. The stock has an impressive Zacks Rank of 1 and came up with an average trailing four-quarter beat of 8.89%.

Global Payments provides payment technology and software solutions for credit cards, debit cards, electronic payments and check-related services. It holds a Zacks Rank #2 (Buy) and delivered an average four-quarter earnings surprise of 3.36%.

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