MoneyGram International, Inc. (MGI) is one of the largest cross-border, peer-to-peer money transfer services providers in the United States. It has been one of the best-performing stocks in the financial services industry, gaining 268.3% over the past year and 110.3% year-to-date.

Recent news regarding the company’s potential takeover by Stellar Development Foundation and Advent International can be attributed as the primary reason behind current investor interest in the stock. As a result, the stock has gained 17% over the past five days.           

So, here’s what we think could shape MGI’s performance in the near term:

Restructuring Balance Sheet

As part of a structural refinancing, in June MGI repaid the $100 million principal balance under its Second Lien Credit Agreement with Bank of America (BAC), along with a $7 million  prepayment premium and accrued interest.

On June 18, MGI raised $99.80 million through an at-the-market offering of 10.40 million shares. The offering’s net proceeds were used to fund MGI’s  debt redemption with Bank of America. However, the offering caused the dilution of total shares outstanding, implying lower shareholder returns and EPS.

However, on July 21, the company completed a senior notes offering that raised $415 million in net proceeds, along with a $400 million senior secured term loan and a new revolving credit facility worth $32.50 million.

MGI’s trailing-12-month total debt stands at $916.80 million, while its net debt came in at $764 million. However, the company’s insufficient cash inflows raise concerns regarding its debt and interest repayment capacity. Its trailing-12-month net operating cash flow came in at $96.80 million. But MGI’s trailing-12-month levered free cash flow stood at a negative $696.33 million. As a result, its debt/free cash flow ratio is negative 1.23. In addition, the company has a relatively low covered ratio of 1.11.

Mixed Valuation

In terms of non-GAAP forward Price/Earnings, MGI is currently trading at 322.88x, which is 1,123.6% higher than the 26.39x industry average. In addition, its 26.97 forward EV/EBIT ratio  is 29.3% higher than the 20.86 industry average.

The stock’s respective 0.72 and 1.31 forward Price/Sales and EV/Sales multiples compare favorably with the 3.95 and 4.04 industry averages.

Consensus Rating and Price Target Reflect Potential Downside

Of the three Wall Street analysts that rated MGI, one rated Buy, one rated it Hold, and one rated it Sell. The $10.42 12-month median price target indicates a 7.7% potential downside. The price targets range from a low of $9.00 to a high of $12.25.

POWR Ratings Reflect Bleak Prospects

MGI has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

MGI has an F grade of F for Sentiment, and a D for Quality. Analysts’ projections regarding a potential decline in its share price are consistent with its Sentiment grade. Moreover, the company’s negative net income margin and levered free cash flow margin justify the Quality grade.

MGI is ranked #46 of 51 stocks in the Consumer Financial Services industry.

Beyond what we’ve stated above, we have rated MGI for Value, Stability, Momentum, and Growth. Get all MGI ratings here.

Click here to view the top-rated stocks in the B-rated Consumer Financial Services industry.

Bottom Line

Despite being one of the biggest names in the financial services space, MGI’s net income margin and levered free cash flows have remained negative over the past year. Furthermore, the company’s high debt burden and dilution of shares indicate lower returns for shareholders. Thus, we think the stock is best avoided now.

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