Is The Western Union Company Stock Attractive?

WU: The Western Union Company logo
WU
The Western Union Company

[Updated 11/24/2021] The Western Union Company Update

The Western Union Company stock (NYSE: WU) currently trades at close to $17 per share, around 40% below its pre-Covid-19 peak. The company is a market leader in cross-border money movement and payment services. It saw its stock trading approximately at $28 in February 2020 just before the outbreak of the pandemic and is still 40% below that level. The stock has lost around 9% from the March lows of 2020, compared to the S&P 500 which has more than doubled (up 110%) during this period. The accelerated Covid-19 vaccination program and lifting of lockdown restrictions in the year have benefited the economic activity, but the recovery is slow. While The Western Union Company’s revenues for the first six months of 2021 increased 8% y-o-y, the growth slowed down in the third quarter – Q3 revenues gained just 2% y-o-y. This was due to a marginal decrease in the consumer-to-consumer transaction volumes. The company has posted mixed results in the recently released third-quarter results, topping the earnings consensus and missing the revenue expectations. Further, the street is expecting WU to report total revenues of around $1.29 billion in the fourth quarter, taking the full-year figure to $5.08 billion – approximately 4% below the 2019 figure. This slow recovery has made investors positively cautious about WU stock.

Returning to the pre-Covid level means that WU stock will have to increase by 67% from here. We do believe that a full recovery is possible over the next 1.5-2 years, once the transaction volumes recover to the pre-Covid-19 levels. That said, the transaction volumes at the offline retail locations are still suffering due to the slow pace of economic recovery. While the growth in digital money transfer transactions (up 38% for the first nine months) has supported the top-line, it has not been able to offset the drop in offline volumes. Notably, the WU’s total transaction volumes for the first nine months have increased 7% y-o-y – lower than the pre-Covid-19 levels. Further, several places have again begun to implement lockdown restrictions due to the resurging of Covid-19 cases. This can further hamper the growth rate, however, given the high rate of vaccination, the impact is unlikely to be as severe as the previous year. Overall, we expect the improvement in the economy to boost the transaction volumes over the subsequent quarters. This will likely help WU stock to drive an upside of around 67% over the next 1.5-2 years, making it a good investment opportunity.

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Our conclusion is based on the detailed comparison of The Western Union Company’s stock during the 2008 recession vs. now in our dashboard analysis.

[Updated 10/29/2021] What To Expect From The Western Union Company Stock?

The Western Union Company stock (NYSE: WU) currently trades at close to $19 per share, around 34% below its pre-Covid-19 peak. WU, a global leader in cross-border money movement and payment services, saw its stock trading just above $28 in February 2020 just before the outbreak of the pandemic, and is still almost 34% below that level. The stock is at the same level as the March lows of 2020, compared to the S&P 500 which has more than doubled (up 105%) during this period. The easing of the lockdown restrictions and fast-paced Covid-19 vaccination program has helped the economic activity recover to a great extent. The same is evident from the improvement in WU’s transaction volumes over the recent quarters. Notably, The Western Union Company’s revenues for the first half of 2021 increased 8% y-o-y to $2.5 billion. That said, the revenue figure was still 7% below the half-yearly revenues in 2019. Further, WU is likely to post total revenues of around $1.32 billion in the third quarter (as per the consensus estimates) – up 6% y-o-y. This will enable the revenues for the first nine months to touch $3.8 billion, which is still 4% below the 2019 figure. This slow recovery in revenues is the main reason behind negative investor sentiment toward the stock.

Returning to the pre-Covid level means that WU stock will have to increase by 53% from here. We do believe that a full recovery is possible in the near term, once the transaction volumes recover to the pre-Covid-19 levels. The company is heavily dependent on the consumer-to-consumer division, which contributed close to 90% of the total revenues. It drives most of its business from offline retail locations. The revenue stream suffered in 2020 due to the Covid-19 related restrictions and the economic slowdown. On the flip side, the firm witnessed a significant rise in the number of digital transactions, as the Covid-19 crisis led to a shift in customer focus toward digital. While the transaction volume has improved in 2021, it is still below the pre-Covid-19 levels. We expect the recovery in the economy to boost the transaction volumes over the subsequent quarters. Overall, this will likely help WU stock to drive an upside of around 53% in the near term, making it a good investment opportunity. 

Our conclusion is based on the detailed comparison of The Western Union Company’s stock during the 2008 recession vs. now in our dashboard analysis.

[Updated 09/30/2021] Will The Western Union Company Stock Recover To Its Pre-Covid Level?

The Western Union Company stock (NYSE: WU) currently trades at $21 per share, around 27% below its pre-Covid-19 peak. A leader in global money movement and payment services, WU saw its stock trading just above $28 in February 2020 just before the outbreak of the pandemic and is still almost 27% below that level. The stock has gained 12% since its March lows of 2020 compared to the S&P 500 which has almost doubled during this period. The easing of the lockdown restrictions and successful vaccine rollout has boosted economic activity, leading to higher transaction volumes, especially in the consumer-to-consumer segment. This is also evident from the growth in The Western Union Company’s revenues over the recent quarters – half-yearly revenues increased 8% y-o-y to $2.5 billion. Despite this, the stock has underperformed the broader index. The negative investor sentiment is because of slow recovery in revenues and transaction volumes from retail locations in the consumer-to-consumer segment, which is still below the pre-Covid-19 levels.

Returning to the pre-Covid level means that WU stock will have to increase by 36% from here. We do believe that the upside is possible in the near term, once the transaction volumes recover to the pre-Covid-19 levels. The company’s consumer-to-consumer segment, which generates close to 87% of its top-line, reported a 3% y-o-y drop in 2020. It was mainly due to lower demand and Covid-19 related restrictions, majorly impacting its business from retail locations. That said, it was partially offset by 38% y-o-y growth in WU’s digital money transfer revenues driven by an 81% increase in digital transactions. The gradual improvement in the economic conditions and easing of lockdown restrictions is likely to boost the transaction volumes from retail locations. Overall, this will likely help WU’s top-line and drive an upside of around 36% in the stock in the near term, making it a good investment opportunity.

But pre-Covid levels can be attained only once the transaction volumes from WU’s physical retail outlets improve or growth in digital payments make up for the lost revenue. Further, it is also important that the economic recovery is not hindered by a sudden increase in the Covid-19 cases. Our conclusion is based on the detailed comparison of The Western Union Company’s stock during the 2008 recession vs. now in our dashboard analysis.

Covid-19 Crisis

Timeline of Covid-19 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 95% from the lows seen on Mar 23, 2020, with the Fed’s multi-billion dollar stimulus package keeping the economy afloat during the prolonged lockdown and the vaccination drive allowing things to gradually return to near-normal conditions despite several waves of Covid infections..

In contrast, here’s how WU stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

WU and S&P 500 Performance During 2007-08 Crisis

We see WU stock declined from levels of over $21 in September 2007 (pre-crisis peak) to levels of around $11 in March 2009 (as the markets bottomed out), implying WU stock lost 47% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of over $19 in early 2010, rising by 69% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

WU Fundamentals Over Recent Years

The Western Union Company’s revenues decreased from $5.5 billion in 2017 to $5.3 billion in 2019, primarily due to the sale of a substantial majority of its U.S.-based electronic bill payments services. However, the net income increased from -$557.1 million to $1.1 billion over the same period, due to lower operating expenses and gain on divestitures of businesses. Further, the company’s revenues dropped in 2020, coming in at only $4.8 billion, due to the impact of the Covid-19 crisis. WU reported basic EPS of $1.81 per share during the year.

Does WU Have Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

The Western Union Company’s total debt has slightly increased from $3 billion in 2017 to around $3.1 billion in 2020, while its total cash has increased from around $0.8 billion to $1.4 billion over the same period. Further, the company reported a cash outflow of $113.4 million from investments and a cash inflow of $877.5 million from operating activity. Overall, the company has a strong cash inflow from operations and a comfortable cash cushion to meet its obligations in the near term.

Conclusion

Phases of Covid-19 Crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-September 2020: Recovery of demand, with the phased lifting of lockdowns – no panic anymore with number of cases appearing to have plateaued
  • October 2020-February 2021:  Unprecedented surge in Covid cases forcing a fresh round of lockdowns across the nation
  • Since March 2021: Ongoing vaccination drive and gradual re-openings drive an improvement in demand – buoying market sentiment

Despite a rise in the number of new Covid-19 cases in the U.S., we expect a gradual improvement in demand to buoy market expectations. As investors focus their attention on expected full-year 2021 and 2022 results, we believe The Western Union Company stock has the potential for full recovery once fears surrounding the Covid pandemic are put to rest.

 

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