WU Downgraded on Weak Outlook - Analyst Blog
06 11월 2012 - 11:30PM
Zacks
We are downgrading our recommendation on the shares of
Western Union Co. (WU) to ‘Underperform’ from
‘Neutral’ following the company’s third-quarter earnings release,
in which it trimmed the full year 2012 earnings expectations. The
company slashed its earnings guidance to a range of $1.60–$1.63 per
share from a previous estimate of $1.68–$1.72 per share. Moreover,
a stiff competition and weak global economy is taking a toll on the
company performances.
Western Unionis facing compliance-related issues, particularly
those connected to its Southwest Border agreement. The biggest
impact from compliance-related changes has been in Mexico and Latin
America. In Mexico, overall revenue decreased over 20% during the
quarter, due to declines in our Vigo and Orlandi Valuta brands.
Western Union ended its relationships with over 7,000 Vigo agent
locations that could not meet the new compliance requirements. The
company has also experienced operational challenges from related
system implementations for its Vigo brand in Latin America.
Western Union has also recently witnessed challenges in its core
retail money transfer business in certain key markets. It has
reduced prices in the face of rigid competition in those corridors.
These actions have negatively impacted its revenues in some
markets, while at the same time these increased its operating
expense.
The company is also facing strong competition from electronic
channels of money transfer. Though the company is aggressively
expanding its electronic channel at present, it has relatively
smaller presence in this segment.
The effect of soft global economic condition was seen in Western
Union’s revenue, which increased by a mere 1% year over year. The
company’s retail money transfer business was also impacted by
compliance-related changes in a number of markets and competitive
pricing pressures in certain corridors.
On the other hand, Western Union is also facing management
issues. The president of Global Consumer Financial Services along
with Stewart Stockdale has left the company. The company is also
planning to reduce its overall headcount as well as migrate and
consolidate positions from various facilities.
Given a host of headwinds, we expect the stock to remain under
pressure in the near term. However, the company’s strong brand name
along with the sturdy financial position will help it overcome the
hurdles over the long term.
Western Union currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Peer Moneygram
International Inc. (MGI), also currently retains a Zacks
#3 Rank, which translates into a short-term Hold rating.
MONEYGRAM INTL (MGI): Free Stock Analysis Report
WESTERN UNION (WU): Free Stock Analysis Report
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