Western Union Disappoints Fitch - Analyst Blog
20 11월 2012 - 1:52AM
Zacks
Leading money transfer company, Western Union
Co. (WU) received a negative rating action from rating
agency Fitch ratings, which dragged down the Issuer Default
Rating (“IDR”) and all senior unsecured ratings of the former to
'BBB+' from 'A-' . The ratings also carry a negative outlook.
This downward rating action reflects Western Union’s lowered
guidance for 2013 compared with expected 2012 results. Western
Union also forecasts a decline in net income by 10%–15%. The rating
agency is concerned with declining pricing for remittance service
in some international markets, where the company has lost its
market share.
Western Union is facing compliance-related issues in Mexico
and Latin America. In Mexico, overall revenue decreased due to
deterioration in its 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.
The rating agency believes that though the price decline will help
the company to gain back its lost market, bottom-line margins will
shrink due to lowering of prices, thus compressing overall margins.
Western Union is also lagging behind in its technology
offerings, and is aggressively seeking to invest in these fields.
Fitch is of the opinion that this particular step will increase
company’s operating expense. Also, the rating agency believes that
the recent dividend increase of 25% by the company is more than it
can afford.
However, the rating agency noted that the Western Union’s
traditional business remains strong. The company continues to hold
a strong brand name. The rating agency also notes that cash
remittance, in which the company holds a major standing, will
continue to constitute a major component of overall remittance
market, thus limiting the potential competition from cash-less
based remittance alternatives.
Western Union’s key positives include a globally diversified
business operation, a wide agent network and a low cost variable
operating cost structure.
The company may see a further negative rating action if
compliance risk results in any unseen liability; less remittance
thus uprooting its traditional physical transfer business;
operational risk from excessive use of cash for dividend payment
and share buyback.
Peer MoneyGram International Inc. (MGI)
carries a ‘B+’ rating from Fitch.
Western Union currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. We are also maintaining
our long-term Underperform recommendation on its
shares.
MONEYGRAM INTL (MGI): Free Stock Analysis Report
WESTERN UNION (WU): Free Stock Analysis Report
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Zacks Investment Research
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