On Jan 9, we reiterated our recommendation on MoneyGram International Inc. (MGI) at Neutral based on its improving core fundamentals, expense control and capital strength. However, intense competition and restricted margins’ growth augment the operational risks.
Why the Retention?
Estimates for MoneyGram have moderated since the company reported its third-quarter 2013 results on Oct 24. The company’s earnings per share of 31 cents missed the Zacks Consensus Estimate by a penny, although revenues of $383 million exceeded the same benchmark by 3.5%.
However, the top and bottom line surpassed the year-ago results by 13.1% and 3.3%, respectively, based on noticeable growth in both the global money transfer and financial paper products segments, along with an 8.5% decline in total operating expenses card. Also, investment income showed up despite overall operating and EBITDA margins remaining low.
Following the release of the third-quarter results, the Zacks Consensus Estimate for 2013 and 2014 remained intact at $1.13 and $1.35, respectively, in the last 60 days. Nonetheless, on a year-over-year basis, earnings are projected to grow 17.0% in 2013 and 18.5% in 2014.
Overall, with the Zacks Consensus Estimate for both fiscal 2014 and 2015 showing no clear directional pressure on the stock in the near term, the company now has a Zacks Rank #3 (Hold).
Since its inception, MoneyGram has grown inorganically. As the second largest provider of international remittances, it intends to grow by delivering better value to its customers and in turn, drive market share gains. The company has also teamed up with PayPal to launch a funds-in service and is now utilizing the internet, mobile phones, kiosks, cash-to-account services and ATMs for money transfer.
Moreover, the company is gaining traction with the raised momentum in self-service and new channel revenues. These efforts also justify management’s top-line and EBITDA guidance at the higher-end of 7–10% and 3–6%, respectively, along with higher free cash flow for 2013.
Other Financial Stocks That Warrant a Look
While we maintain a neutral stance on MoneyGram in the near term, better-ranked financial stocks include Portfolio Recovery Associates Inc. (PRAA), American Express Co. (AXP) and Moody’s Corp. (MCO). All these stocks carry a Zacks Rank #2 (Buy).
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