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Why it is Wise to Hold Western Union (WU) in Your Portfolio
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Western Union Co. (WU - Free Report) a leader in money remittance space, looks well-poised for growth despite some near-term headwinds.
The company’s focus on three main areas, such as driving digital expansion and growth, offering cross-border platform to new payments areas and generating additional operating efficiencies. All these will likely lead to sustainable growth.
But a slowdown anticipated in global economy might affect the company’s business. Moreover, high expenses incurred for marketing, investment in technology and adverse foreign exchange volatility might suppress bottom-line growth.
Western Union is also facing an intense competition with the many new fintech companies thronging the money remittance industry.
Pressure on business has caused the stock to shed 7.7% of value in a year’s time against the industry’s rally of 14.5%.
Nevertheless, Western Union has upped its ante, undertaking strategic initiatives for growth, which is expected to bump up the stock price going forward.
Let’s Analyze the Growth-Driving Factors
Investment in Digital Platform: Western Union is trying to attract brisk business from digitally initiated money transfer, which includes westernunion.com and Mobile Money Transfer. Revenues from the company’s digital platform have been rising for the past many quarters. The company’s digital business continued with its impressive run recording 22% revenue growth in 2018. westernunion.com is increasingly becoming integral to the company’s business, representing 12% of the total money transfer revenues in 2018, up from 6% just three years ago. The company has expanded westernunion.com to 60 countries and territories.
Business Transformation Program: Recently, the company undertook a business transformation program named WU Way, which aims to drive operational efficiencies through digitization. In 2018, the company realized approximately $70 million of savings from this program. This business conversion program is expected to generate further cost savings in 2019, thereby aiding margins. A significant progress in the company’s global digital initiatives is likely to further drive revenues from this platform.
Growth in Global Remittance: Western Union’s key business Consumer-to-Consumer (accounting for nearly 80% of the company’s revenues) will remain attractive as worldwide immigration has been experiencing healthy growth.
We expect further improvement in margins as technology investment and other cost-reduction initiatives pay off. An uptick in cross-border remittance and strong growth in digital platform will perk up greater demand for money transfer services and will be accretive to the segment’s top line.
Divestment of Non-Core Business: The company has sold its Speedpay business to ACI Worldwide. This divestiture will allow Western Union to concentrate on its core area of cross-border money transfer. The company seeks to expand its digital services, leverage its platform to unlock new cross-border, cross-currency payment opportunities and generate additional operating efficiencies. Western Union expects the deal to secure a pre-tax gain of approximately $500 million. Net proceeds from this transaction, after taxes on the gain, are projected to be approximately $575 million and the company intends to use the same to return shareholder capital and manage its capital structure as well.
Albeit the stock remains constrained by some near-term concerns, the long-term picture looks brighter. The stock is therefore a good option for investors to hold on to.
Western Union carries a Zacks Rank #3 (Hold). Investors interested in the finance sector can look into some better-ranked stocks like Virtu Financial, Inc. (VIRT - Free Report) , Fidelity National Information Services, Inc. (FIS - Free Report) and Euronet Worldwide, Inc. (EEFT - Free Report) .
Virtu Financial provides market making and liquidity services to the financial markets around the globe. The company sports a Zacks Rank #1 (Strong Buy) and came up with average trailing four-quarter positive surprise of 0.63%.
Fidelity National Information works as a financial services technology company worldwide. It has a Zacks Rank of 1. The company managed to deliver positive results in all the trailing four reported quarters, the average being 2.72%.
Euronet provides payment and transaction processing and distribution solutions worldwide. It carries a Zacks Rank #2 (Buy). The stock pulled off average four-quarter beat of 2.68%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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.”
Image: Bigstock
Why it is Wise to Hold Western Union (WU) in Your Portfolio
Western Union Co. (WU - Free Report) a leader in money remittance space, looks well-poised for growth despite some near-term headwinds.
The company’s focus on three main areas, such as driving digital expansion and growth, offering cross-border platform to new payments areas and generating additional operating efficiencies. All these will likely lead to sustainable growth.
But a slowdown anticipated in global economy might affect the company’s business. Moreover, high expenses incurred for marketing, investment in technology and adverse foreign exchange volatility might suppress bottom-line growth.
Western Union is also facing an intense competition with the many new fintech companies thronging the money remittance industry.
Pressure on business has caused the stock to shed 7.7% of value in a year’s time against the industry’s rally of 14.5%.
Nevertheless, Western Union has upped its ante, undertaking strategic initiatives for growth, which is expected to bump up the stock price going forward.
Let’s Analyze the Growth-Driving Factors
Investment in Digital Platform: Western Union is trying to attract brisk business from digitally initiated money transfer, which includes westernunion.com and Mobile Money Transfer. Revenues from the company’s digital platform have been rising for the past many quarters. The company’s digital business continued with its impressive run recording 22% revenue growth in 2018. westernunion.com is increasingly becoming integral to the company’s business, representing 12% of the total money transfer revenues in 2018, up from 6% just three years ago. The company has expanded westernunion.com to 60 countries and territories.
Business Transformation Program: Recently, the company undertook a business transformation program named WU Way, which aims to drive operational efficiencies through digitization. In 2018, the company realized approximately $70 million of savings from this program. This business conversion program is expected to generate further cost savings in 2019, thereby aiding margins. A significant progress in the company’s global digital initiatives is likely to further drive revenues from this platform.
Growth in Global Remittance: Western Union’s key business Consumer-to-Consumer (accounting for nearly 80% of the company’s revenues) will remain attractive as worldwide immigration has been experiencing healthy growth.
We expect further improvement in margins as technology investment and other cost-reduction initiatives pay off. An uptick in cross-border remittance and strong growth in digital platform will perk up greater demand for money transfer services and will be accretive to the segment’s top line.
Divestment of Non-Core Business: The company has sold its Speedpay business to ACI Worldwide. This divestiture will allow Western Union to concentrate on its core area of cross-border money transfer. The company seeks to expand its digital services, leverage its platform to unlock new cross-border, cross-currency payment opportunities and generate additional operating efficiencies. Western Union expects the deal to secure a pre-tax gain of approximately $500 million. Net proceeds from this transaction, after taxes on the gain, are projected to be approximately $575 million and the company intends to use the same to return shareholder capital and manage its capital structure as well.
Albeit the stock remains constrained by some near-term concerns, the long-term picture looks brighter. The stock is therefore a good option for investors to hold on to.
Western Union carries a Zacks Rank #3 (Hold). Investors interested in the finance sector can look into some better-ranked stocks like Virtu Financial, Inc. (VIRT - Free Report) , Fidelity National Information Services, Inc. (FIS - Free Report) and Euronet Worldwide, Inc. (EEFT - Free Report) .
Virtu Financial provides market making and liquidity services to the financial markets around the globe. The company sports a Zacks Rank #1 (Strong Buy) and came up with average trailing four-quarter positive surprise of 0.63%.
Fidelity National Information works as a financial services technology company worldwide. It has a Zacks Rank of 1. The company managed to deliver positive results in all the trailing four reported quarters, the average being 2.72%.
Euronet provides payment and transaction processing and distribution solutions worldwide. It carries a Zacks Rank #2 (Buy). The stock pulled off average four-quarter beat of 2.68%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 >>