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Western Union (WU) Up 3.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Western Union (WU - Free Report) . Shares have added about 3.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Western Union due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Western Union Beats on Q3 Estimates, Ups EPS Outlook

The Western Union Company reported third-quarter 2018 operating earnings per share of 54 cents, which beat the Zacks Consensus Estimate by 8.33%. However, the bottom line declined by a cent year over year.

Behind the Headlines

Total revenues of nearly $1.4 billion declined 1% on a year-over-year basis but increased 3% on a constant currency basis. Weakening of Argentine Peso led to a decline in revenues but increase in revenue per transaction in the company’s Argentina-based businesses aided the top line.

Western Union generated operating income of $302.6 million, up nearly 11% year over year.

Adjusted operating margin of 21.8% improved 240 basis points (bps) year over year.

Total operating expense of $1.09 billion was down 4% year over year.

Segment Update

Consumer-to-Consumer (C2C)

Revenues for the segment remained unchanged on a reported basis and increased 2% on constant currency to $1.11 billion, led by higher transactions. Total transactions grew 4%, driven by strength at westernunion.com.

Revenues from westernunion.com C2C improved 19% on a reported basis and 20% on a constant currency basis. Revenues rose on the back of 23% transaction growth. Notably, westernunion.com represented 12% of total C2C revenues in the quarter under review.

Operating income increased 7% year over year to $277.8 million. Operating margin expanded 160 bps to 25.1%.

Business Solutions

Revenues decreased 1% on a normal basis and 3% on a constant currency basis year over year to $100.2 million.

The segment’s operating income of $14.1 million, increased 57% year over year.

Its operating margin improved 510 bps year over year to 14.2%.

Other

Other segment primarily consists of the U.S. and Argentina bill payments businesses. Revenues slipped 9% but increased 7% on a constant currency basis to $180.2 million.

Operating income declined 49% to $10.5 million and operating margin contracted 460 bps to 5.9%, both on a year-over-year basis.

Balance Sheet

Cash and cash equivalents as of Sep 30, 2018 were $767.6 million, down 8.5% from 2017-end level.

At quarter-end, borrowings rose nearly 8.6% from year-end 2017 to $3.3 billion.

As of Sep 30, 2018, stockholders' equity was a deficit of $415.3 million compared with stockholder’s equity deficit of $491.4 million at year-end 2017.

Net cash from operations totaled $518.5 million compared with $423.1 in the comparable period last year.

Share Repurchase & Dividend Update

In the reported quarter, the company returned $84 million in dividends and $100 million in share buybacks to its shareholders.

2018 Guidance Update

The company kept unchanged the guidance related to revenues, operating margin and cash flow.  It expects revenue growth between low single-digit (on a GAAP basis) and low to mid-single digit in constant currency, operating margin of approximately 20%.

Earnings per share guidance was raised. The company expects GAAP EPS in a range of $1.85 to $1.92 (previously $1.82 to $1.92) and adjusted EPS in a range of $1.88 to $1.95 (previously $1.80 to $1.90).

 

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 5.09% due to these changes.

VGM Scores

Currently, Western Union has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Western Union has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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