WESTERN UNION CO. $14 (New York symbol WU; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 596.6 million; Market cap: $8.4 billion; Price-to-sales ratio: 1.4; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.westernunion.com) provides money-transfer and foreign-exchange services in over 200 countries.
In the three months ended September 30, 2012, the company’s earnings rose 12.4%, to $269.5 million from $239.7 million a year earlier. Western Union is an aggressive buyer of its own shares. Because of fewer shares outstanding, earnings per share rose at a faster pace of 18.4%, to $0.45 from $0.38.
If you exclude the cost of integrating the businesspayments division of U.K.-based Travelex Holdings, which Western Union bought in 2011, per-share earnings would have risen 15.0%, to $0.46 from $0.40.
Revenue rose just 0.8%, to $1.42 billion from $1.41 billion. That’s mainly because the high U.S. dollar hurts the contribution of the company’s overseas operations. Without the negative impact of exchange rates, revenue would have risen 3%
As a result, it now expects to earn $1.65 to $1.68 a share in 2012, down from its earlier estimate of $1.73 to $1.77. The stock trades at 8.4 times the midpoint of the new range.
The company has also increased its quarterly dividend by 25.0%, to $0.125 a share from $0.10. The new annual rate of $0.50 yields 3.6%.
We had high hopes for Western Union when we first recommended it at $28 in our August 2008 issue. However, the slow global economy and weak U.S. job growth have hurt demand for the company’s moneytransfer services. It’s also facing stronger competition from big banks, which are using their size and the Internet to cut money transfer fees.
The stock’s low p/e and high yield give it plenty of appeal. As well, its well-known brand also gives its an advantage over regular banks in developing countries. A new restructuring plan should also save it $30 million a year by 2014. That’s small next to its earnings, but should give it more flexibility to lower its prices.
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