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Will MoneyGram (MGI) Q3 Earnings Suffer From High Expenses?

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World’s leading money remittance company MoneyGram International Inc. is expected to report third-quarter results on Nov 9, 2018.

We expect revenues to remain under pressure, due to the impact of the newly implemented compliance standards and roll-out of the Walmart2World service. In the first quarter of 2018, the company and Walmart Inc., one of the company’s largest agent, announced the launch of Walmart2World, powered by MoneyGram, a new money transfer service that allows customers to send money from Walmart in the U.S. to any MoneyGram location in more than 200 countries.

MoneyGram expects the Walmart2World products to continue to have a negative impact on its top-line growth due to lower revenue per transaction. The company renewed its long-term agreement to offer all MoneyGram products and services at Walmart for two more years.

In addition to the competitive environment, global compliance requirements are becoming increasingly more complex, thereby affecting the company’s top-line growth. In the first quarter of 2018, the company launched compliance standards  that include  verification standards for all money transfer services, limits on transaction frequency and limits on the total amount of money an individual can send within a certain period of time.

The company continues to enhance its compliance tools with various government and other regulatory programs around the globe. This should lead to an increase in compliance-related costs, which should lead to an increase in expense.

In the first quarter of 2018, MoneyGram initiated a restructuring and reorganization program to reduce operating expenses, focus on improving profitability and better align the organization to deliver new digital touch-points for customers and agents. In connection with the Digital Transformation Program, which is expected to be substantially completed in 2019, the company expects to incur restructuring and reorganization charges between $15.0 million to $18.0 million. Part of these costs will be incurred in the to-be reported quarter, which might lead to a rise in operating costs.

Also, pricing pressure continues to negatively impact the company’s growth in the U.S., along with economic issues in the Middle East and Africa, which have restricted its ability to transact in certain markets. Additionally, currency volatility, liquidity pressure on central banks and pressure on labor markets in certain countries may continue to impact its business during 2018. This should ultimately culminate into soft revenues growth in the to-be reported quarter.

Nevertheless, revenues should have grown primarily from new customer acquisitions.

For its Financial Paper Products segment, the company expects the decline in overall paper-based transactions to continue, primarily due to continued migration by customers to other payment methods.

Its investment revenues, which consists primarily of interest income generated through the investment of cash balances received from the sale of its Financial Paper Products, is dependent on the interest rate environment. The company would see a positive impact on its investment revenues led by the rise in interest rates.

Earnings Surprise History

The company does not have an impressive earnings surprise history. It missed earnings estimates in two of the last four quarters with an avearge negative surprise of 2.03%. This is depicted in the graph below:

MoneyGram International Inc. Price and EPS Surprise

Here is What our Quantitative Model Predicts

Our proven model does not conclusively show that MoneyGram International is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: MoneyGram International has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: MoneyGram International carries a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

Stocks That Warrant a Look

Here are some companies that you may want to consider as these have the right combination of elements to beat on earnings this quarter:

Prudential Financial, Inc. (PRU - Free Report) is expected to report third-quarter 2018 earnings results on Nov 7. The company has an Earnings ESP of +0.12% and a Zacks Rank #2. 

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Trade Desk Inc. (TTD - Free Report) is expected to report third-quarter 2018 earnings results on Nov 8. The company has an Earnings ESP of +0.29% and a Zacks Rank #2.    

WillScot Corporation (WSC - Free Report) is expected to report third-quarter 2018 earnings results on Nov 8. The company has an Earnings ESP of +195.24% and a Zacks Rank #3.

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