Strong global economy, strong employment scenario, continuous immigration across the globe, surge of technology, which improved speed and security of transferring money, poised the industry for strong growth.
Presently, MoneyGram International Inc. looks attractive. The company is making huge investments in its digital platform while investing in compliance and growth initiatives. Based on these strategies, the company is well poised to sustain long-term growth.
The company has lost 61% in a year’s time compared with the industry’s decline of 5%. This decline in price provides a good bargain. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 6.5% upward over the past seven days, which reflects analyst’s optimism toward the stock.
Furthermore, this Zacks Ranked #2 (Buy) stock carries an impressive Value Score of B. Our research shows that stocks, with a Value Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best opportunities in the value investing space.
What’s Bothering the Stock
The company has been facing a decline in its revenues since 2015 through the first half of 2018 (except in 2016). The company expects short-term revenue headwinds from new compliance standards and the new Wal-Mart white label service. Moreover, the U.S.-to-U.S. market continues to be challenging, with increasingly aggressive market pricing and a variety of new competitors. Political unrest and economic weakness in parts of the Middle East and Africa, currency controls, and challenges in certain key markets should keep the company’s revenues under pressure in the future.
Despite the pressure on its revenues, we are optimistic as the company took steps to optimize its physical network and implemented important operational improvements for restructuring initiatives. It is also executing on its plans to expand digital capabilities, which is expected to aid the company.
These Factors Should Aid The Company’s Growth
Reorganization Initiatives: At the beginning of the year, the company undertook business restructuring and reorganization program as part of its Digital Transformation initiative. The program is expected to cost an additional $15-$18 million, which is expected to be completed by 2019. The company expects the same to save $30 million of expenses in 2018 and $45 million on an annualized basis, upon the completion. We believe the company’s restructuring initiative to aid margins in the long run.
Investment in Digital Platform: On the digital front, the company is continuing to build its digital capabilities by enhancing its ability to facilitate digital transactions, expanding internationally, entering partnerships and personalizing interaction. The digital remittance market continues to grow.
Some analysts anticipate digital remittances of $300 billion by 2021. This provides an immense opportunity for growth. Therefore, the company continues to invest in the ability to better facilitate digital transactions by building a more customer-centric mobile app and improving in its website through additional features, and functionality. These investments are already paying off as data shows that online customers are transacting more frequently. Moreover, the company’s digital revenues represented 16% of total revenues in the second quarter.
The company has also forged a partnership with Visa, which is expected to help it provide direct-to-bank account fund transfer service via Visa Direct. This pact will also expand its presence digitally.
International Expansion: The company is using its digital presence to expand internationally. Earlier this year, it launched MoneyGram online in France and Spain. Both countries continue to witness increases in sends. Leveraging on that success, in July 2018, the company launched the service in Belgium, Austria, Portugal and Netherlands. Moreover, the service went live in Ireland. Additionally, the company launched MoneyGram online in Australia, a market with substantial potential for online sends. It now has presence in 11 countries and it looks forward to continuing on its future international expansion.
Development of Physical Network: The company is putting focus to capitalize on its physical network to ensure that it has the best possible agents. It is developing its cash-in and cash-out capabilities, and believes it to be a competitive advantage for many years to come. In this vein, the company tied up with two key partners, the UK Post Office and Elektra in Mexico.
Cost-Reduction Initiatives: The company’s cost-reduction plans are on track. Headcount reduction, elimination of costs, closing underperforming locations will aid the company’s margins at a time when top-line growth will be hard to achieve.
Investment in Compliance: MoneyGram has been investing in compliance capabilities to help protect the business and its consumers from criminal activities. Once implemented, these compliance standards will have intended impact on the company’s business, which, in the short-term, will lead to an expected decrease in revenues.
In the longer term, however, these standards will better place the company in the industry. It will have a reduced risk profile, relative to other players in the industry. Higher data standards will enable the company to better protect and communicate with its customers, and therefore, deliver a safer and more personalized customer experience.
Given a host of developments taking place in the company, coupled with strong and thriving industry, we find MoneyGram an attractive pick.
Other Stocks to Consider
Euronet Worldwide, Inc. (EEFT - Free Report) , Leucadia National Corporation (JEF - Free Report) , and Safety, Income and Growth, Inc. (SAFE - Free Report) , each carries the same Zacks Rank as MoneyGram. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Leucadia National and Euronet Worldwide have witnessed a 9.6% and 2.5%, respective, increase in the Zacks Consensus Estimates for 2018 earnings over the past 30 days. While Safety, Income and Growth have witnessed an increase of 16.67% over the past 60 days.
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