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Why MoneyGram is Down Nearly 80% in a Year: What's Further?
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The stock of MoneyGram International, Inc. seems to have fallen out of favor with investors due to declining revenues, increasing competition, weak operating conditions in some of its markets and a high compliance cost.
In the recently reported fourth quarter (results were released only last week), this money transfer company’s earnings of 1 cent per share missed the Zacks Consensus Estimate by 90%. The bottom line also plunged 96% year over year. Deflating revenues were mainly responsible for the company’s lackluster results.
Numerous headwinds plaguing the stock have dragged its value down by 79% compared with its industry’s decline of 14.5%.
What’s Behind the Stock Slump?
MoneyGram’s total revenues have been waning since 2015 through 2018 (except in 2016). The top line has been impacted by increasing compliance controls and imposing limits on certain transactions. Also, the effect of tighter restrictions in corridors such as Nigeria and the United States induced the revenue decline. Moreover, the U.S.-to-U.S. market is a persistent challenge with an 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, constraints in certain key markets might keep the company’s revenues under pressure in the coming quarters. For 2019, revenues are expected to further subside approximately 2-4% on constant currency basis.
MoneyGram also faces compliance risks associated with regulations governing its business and cost structure across numerous jurisdictions worldwide. From 2014 to 2017, the company incurred nearly $39 million (on average) in its compliance enhancement program. In 2018, the company further incurred $12.9 million, up 34% year over year toward compliance enhancement program. High compliance requirements have suffered loss of agents and customers. Plus, these expenses weigh on the company’s margins.
MoneyGram’s high leverage also concerns investors. Its net debt-to-capital ratio is 107% compared with the industry average of 32%. This high leverage is not favorable, especially at the time when the company’s revenues remain stressed. Also, the company’s interest coverage ratio of -0.51 times compared with the industry average of 6.13 times is very poor, implying that its earnings are not sufficient to cover interest obligations, raising worries of default on interest payments.
And all this boils down to dismal return on equity (ROE), the most widely used measure for a company’s profitability. MoneyGram’s trailing 12-month ROE of a negative 7.1% compares unfavorably with 22% ROE for the industry. This simply reflects the company’s inefficiency in utilizing shareholders’ funds.
Moreover, for 2019, the company is projecting revenues to dip approximately 2-4% and adjusted EBITDA to drop approximately 8-12%, both on constant currency basis. This tepid guidance raises investors’ woes.
What Lies Ahead?
Though regaining the stock value seems like a tough call right now but the company has taken certain initiatives, which might help the stock rebound in the coming quarters.
These growth initiatives are:
Growth of Digital Payment Platform: Revenues from the company’s digital platform have been rising consistently since 2013 through 2018. Its investment in innovative products and services, particularly Digital/Self-Service solutions such as moneygram.com, mobile solutions, account deposit and kiosk-based services help enhance revenue growth and diversify its product offerings. The company is also working on improving its mobile app and many corresponding programs, a combination, which will enhance its digital capabilities. These investments will make the company a digitally enabled customer-centric organization, thus enabling it to compete efficiently with numerous fintech companies thronging the money transfer industry.
Use of Cryptocurrency: MoneyGram has partnered with Ripple, which will allow it to use the latter's digital currency named XRP in its internal payments process. The use of cryptocurrency will expedite the company's remittance settlement time and lower money transfer costs. Also, the deal will ramp up MoneyGram’s global treasury operations and improve customer services.
Growth Initiatives: During the first quarter of 2018, MoneyGram undertook business restructuring and reorganization program as part of its Digital Transformation initiative. To this end, it incurred $20 million of expenses in 2018. The program is expected to cost an additional $2.5-$5.5 million, which is expected to be completed by 2019. The company saved $30.5 million of expenses in 2018 and another $55 million is anticipated on an annualized basis upon completion. We believe, the company’s restructuring efforts will aid its margins in the long run.
The stock has also staged a comeback post fourth-quarter earnings release and has even gained 3% ever since compared with the industry’s rise of 1.5%. The company’s disclosure about its cost savings program and digital expansion along with other measures to achieve revenue growth must have favored the stock. These endeavors when reflected in future earnings numbers will surely enable the stock to recover in the quarters ahead.
Both Consumer Portfolio and Euronet’s 2019 earnings are forecast to grow 24% each to 63 cents and $6.88 per share. While Synchrony Financial’s 2019 earnings are predicted to rise 17% to $4.38 per share.
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Why MoneyGram is Down Nearly 80% in a Year: What's Further?
The stock of MoneyGram International, Inc. seems to have fallen out of favor with investors due to declining revenues, increasing competition, weak operating conditions in some of its markets and a high compliance cost.
In the recently reported fourth quarter (results were released only last week), this money transfer company’s earnings of 1 cent per share missed the Zacks Consensus Estimate by 90%. The bottom line also plunged 96% year over year. Deflating revenues were mainly responsible for the company’s lackluster results.
Numerous headwinds plaguing the stock have dragged its value down by 79% compared with its industry’s decline of 14.5%.
What’s Behind the Stock Slump?
MoneyGram’s total revenues have been waning since 2015 through 2018 (except in 2016). The top line has been impacted by increasing compliance controls and imposing limits on certain transactions. Also, the effect of tighter restrictions in corridors such as Nigeria and the United States induced the revenue decline. Moreover, the U.S.-to-U.S. market is a persistent challenge with an 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, constraints in certain key markets might keep the company’s revenues under pressure in the coming quarters. For 2019, revenues are expected to further subside approximately 2-4% on constant currency basis.
MoneyGram also faces compliance risks associated with regulations governing its business and cost structure across numerous jurisdictions worldwide. From 2014 to 2017, the company incurred nearly $39 million (on average) in its compliance enhancement program. In 2018, the company further incurred $12.9 million, up 34% year over year toward compliance enhancement program. High compliance requirements have suffered loss of agents and customers. Plus, these expenses weigh on the company’s margins.
MoneyGram’s high leverage also concerns investors. Its net debt-to-capital ratio is 107% compared with the industry average of 32%. This high leverage is not favorable, especially at the time when the company’s revenues remain stressed. Also, the company’s interest coverage ratio of -0.51 times compared with the industry average of 6.13 times is very poor, implying that its earnings are not sufficient to cover interest obligations, raising worries of default on interest payments.
And all this boils down to dismal return on equity (ROE), the most widely used measure for a company’s profitability. MoneyGram’s trailing 12-month ROE of a negative 7.1% compares unfavorably with 22% ROE for the industry. This simply reflects the company’s inefficiency in utilizing shareholders’ funds.
Moreover, for 2019, the company is projecting revenues to dip approximately 2-4% and adjusted EBITDA to drop approximately 8-12%, both on constant currency basis. This tepid guidance raises investors’ woes.
What Lies Ahead?
Though regaining the stock value seems like a tough call right now but the company has taken certain initiatives, which might help the stock rebound in the coming quarters.
These growth initiatives are:
Growth of Digital Payment Platform: Revenues from the company’s digital platform have been rising consistently since 2013 through 2018. Its investment in innovative products and services, particularly Digital/Self-Service solutions such as moneygram.com, mobile solutions, account deposit and kiosk-based services help enhance revenue growth and diversify its product offerings. The company is also working on improving its mobile app and many corresponding programs, a combination, which will enhance its digital capabilities. These investments will make the company a digitally enabled customer-centric organization, thus enabling it to compete efficiently with numerous fintech companies thronging the money transfer industry.
Use of Cryptocurrency: MoneyGram has partnered with Ripple, which will allow it to use the latter's digital currency named XRP in its internal payments process. The use of cryptocurrency will expedite the company's remittance settlement time and lower money transfer costs. Also, the deal will ramp up MoneyGram’s global treasury operations and improve customer services.
Growth Initiatives: During the first quarter of 2018, MoneyGram undertook business restructuring and reorganization program as part of its Digital Transformation initiative. To this end, it incurred $20 million of expenses in 2018. The program is expected to cost an additional $2.5-$5.5 million, which is expected to be completed by 2019. The company saved $30.5 million of expenses in 2018 and another $55 million is anticipated on an annualized basis upon completion. We believe, the company’s restructuring efforts will aid its margins in the long run.
The stock has also staged a comeback post fourth-quarter earnings release and has even gained 3% ever since compared with the industry’s rise of 1.5%. The company’s disclosure about its cost savings program and digital expansion along with other measures to achieve revenue growth must have favored the stock. These endeavors when reflected in future earnings numbers will surely enable the stock to recover in the quarters ahead.
The stock carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Euronet Worldwide, Inc. (EEFT - Free Report) , Synchrony Financial (SYF - Free Report) and Consumer Portfolio Services, Inc. (CPSS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks (Strong Buy) here.
Both Consumer Portfolio and Euronet’s 2019 earnings are forecast to grow 24% each to 63 cents and $6.88 per share. While Synchrony Financial’s 2019 earnings are predicted to rise 17% to $4.38 per share.
Is Your Investment Advisor Fumbling Your Financial Future?
See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.”
Click to get it free >>