The Western Union Company (WU) in Englewood, Colo., is a global leader in cross-border, cross-currency money transfer and payment services. Based on technology, expertise, and the strength of its omnichannel global financial network, the company has established solid footing to meet the demand for cross-border money movement and payments.

However, WU’s stock has declined 18.1% in price year-to-date and 9.5% over the past three months. Closing yesterday’s trading session at $17.96, it is currently trading 32.5% below its 52-week high of $26.61.

In its recently released third-quarter results, the company beat the consensus earnings estimate, while its revenues fell short of projections. Furthermore, analysts expect WU to report total revenue of around $1.29 billion in the fourth quarter, bringing its full-year amount to $5.08 billion, or roughly 4% lower than its 2019 figure. This slow recovery has made investors cautious about the stock.

So, here’s what could shape WU’s performance in the near term:

Strategic Partnership

Last month, WU and Mastercard, a multinational payments technology company, strengthened their decade-long strategic partnership. The partnership expanded Mastercard Send integration into WU’s global money movement network and Mastercard’s Cross-Border Services delivery via WU’s Business Solutions. It is the most recent iteration of WU’s digital partnership strategy in its quest to become the world’s top global financial network.

Mixed Financials

WU’s total revenue increased 2% year-over-year to $1.29 billion for the third quarter ended September 30, 2021. Its digital money transfer revenues climbed 15% and accounted for 24% and 37% of total Consumer to Consumer (C2C) revenues and transactions, respectively. However, revenues for its largest segment, C2C, remained flat or declined 1%, while transactions dipped 1% during the quarter.

Mixed Profitability

WU’s 16.1% net income margin is 151.5% higher than the 6.4% industry average. Also, its ROA and ROC of 9.2% and 19.7%, respectively, are 153.7% and 299.2% higher than the industry averages. Furthermore, its $977.9 million trailing-12-months cash from operations is 743.7% higher than the $115.91 million industry average.

However, WU’s 41.9% trailing-12-months gross profit margin is 15.2% lower than the 49.2% industry average. Its levered FCF margin stood at a negative 14.2% compared to the 11.8% industry average. Also, its 0.76% trailing-12-months CAPEX/Sales is 66.6% lower than the 2.3% industry average.

Discounted Valuation

In terms of forward Non-GAAP P/E, the stock is currently trading at 8.5x, which is 64.4% lower than the 23.88x industry average. Also, its 1.74x forward EV/Sales is 57% lower than the 4.05x industry average. Moreover, WU’s 1.39x forward Price/Sales is 64.8% lower than the 3.96x industry average.

POWR Ratings Reflect Uncertainty

WU has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. WU has a C grade for Stability and Quality. The Stability grade indicates that the company has higher volatility than its peers. In addition, WU’s mixed profitability is consistent with the Quality grade.

Of  55 stocks in the C-rated Consumer Financial Services industry, WU is ranked #33.

Beyond what I’ve stated above, one can view WU ratings for Growth, Value, Momentum, and Sentiment here.

Bottom Line

The company reported mixed earnings results in its last quarter due to its slower than expected business recovery over the past months. Furthermore, governments worldwide have reinstated public-health restrictions in response to rising COVID-19 cases, which will almost certainly impact the company’s revenue growth this year. So, given analysts’ expectations of slowing growth in the coming months, we believe investors should wait for WU’s prospects to stabilize before investing in the stock.

How Does the Western Union Company (WU) Stack Up Against its Peers?

While WU has an overall C rating, one might want to consider its industry peers, Regional Management Corp. (RM) and Atlanticus Holding Corporation (ATLC), which have an overall A (Strong Buy) rating.

WU shares were trading at $17.94 per share on Wednesday morning, down $0.02 (-0.11%). Year-to-date, WU has declined -14.64%, versus a 25.26% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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