The Western Union Company: WU Stock Is a Bargain Before Earnings

The Western Union Company (NYSE:WU), an iconic payment transfer company, has been trading as a standalone public entity since being spun out from First Data Corp (NYSE:FDC) in 2006.

The Western Union Company: WU Stock Is a Bargain Before Earnings

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It works primarily out of three segments, the first of which is the consumer-to-consumer division that enables people to send money around the world within minutes. Money in this segment is made through a transaction fee as well as a foreign exchange fee.

The company’s second largest business is its consumer-to-business segment, through which WU provides options to make one-time or recurring payments. This includes typical monthly bills like mortgage and car payments, as well as utilities. Most of the revenue in this segment is derived from within the U.S. and fees are strictly transaction-based.

The third segment is the Business Solutions division, which facilitates payment and foreign exchange solutions. These transactions are primarily cross-border, cross-currency transactions for small- and medium-sized businesses. Here, revenue is realized through foreign exchange fees similar to those within the consumer-to-consumer segment.

The company has produced very consistent results over the last decade and is benefitting nicely from increased movement and travel around the world. After sales and earnings dipped during the financial crisis, the results have begun to stabilize with WU showing solid numbers these past few quarters.

For this quarter, I’m expecting more of the same from the company when it releases its earnings report on May 2. Analysts are looking for earnings of 39 cents per share (compared to 37 cents a year ago) on flat revenues of $1.29 billion. Operating income should also be flat as volume growth offsets lower pricing, while WU’s share buyback program drives earnings higher.

Management has not said much on Alibaba Group Holding Ltd (NYSE:BABA) making a stronger offer to buy out competitor Moneygram International Inc (NASDAQ:MGI) — Kansas-based Euromet, which operates ATMs and point-of-sale terminals, made a $1 billion deal for MGI and outbid BABA by a considerable amount back in March — but I believe BABA’s interest in MGI demonstrates that money transfer remains a viable business.

In the meantime, WU’s digital offerings should balance any declines in the traditional business.

WU is a steady company that is selling for a bargain, and there’s a good chance we’ll see earnings continue to improve. Its strong cash flows will also add shareholder value over time and its 3.6% dividend yield should support it for now, making WU a good buy ahead of earnings next week.

Hilary Kramer is the editor of GameChangersBreakout StocksHigh Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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