WESTERN UNION CO. $18 (New York symbol WU; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 620.3 million; Market cap: $11.2 billion; Price-to-sales ratio: 2.0; Dividend yield: 2.2%; TSINetwork Rating: Above Average; www.westernunion.com) provides money-transfer and foreign-exchange services in over 200 countries.
In November 2011, the company paid $967.8 million for the business-payments division of U.K.-based Travelex Holdings Ltd. This subsidiary processes payments for 35,000 businesses in 14 countries.
These operations helped push up Western Union’s revenue by 5.8% in 2011, to $5.5 billion from $5.2 billion in 2010. If you exclude integration costs and other unusual items, earnings rose 4.9%, to $995.8 million from $949.2 million. Earnings per share rose 10.6%, to $1.57 from $1.42, on fewer shares outstanding.
Western Union gets 84% of its revenue from transactions between individuals, mainly money transfers. In 2011, the company processed 225.8 million of these transactions, up 5.6% from 2010. Without the impact of foreign exchange rates, this business’s revenue rose 4%.
The company gets a further 14% of its revenue from transactions between businesses and payments from consumers to businesses, such as utility bills. It processed 425.0 million of these transactions in 2011, up 5.1% from 2010. This division’s revenue rose 9%.
The remaining 2% of revenue comes from selling money orders and prepaid credit cards.
Costs to integrate the Travelex operations will likely limit Western Union’s 2012 earnings to $1.73 a share. The stock trades at 10.4 times that estimate. Western Union also recently raised its quarterly dividend by 25.0%, to $0.10 a share from $0.08. The new annual rate of $0.40 yields 2.2%.
Western Union’s outlook is bright. Its well-known brand gives it an advantage in developing countries where there are few banks. The company’s global reach also helps it profit from rising international trade by making it easier for businesses to transfer funds to businesses in other countries.
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