On Dec 4, 2015, we updated our research report on Western Union Co. WU. It is the largest global money transfer business, with 500,000 agent locations and a 17% share of the remittance market (migrants sending money back home). We expect the company to see l growth in the long run from a positive shift in long-term global immigration.
The company’s international business is its crowning glory. More than 80% of its agents are based internationally, where Western Union faces less competition than the U.S. market.
The company has also been able to regain its lost market share in markets such as Mexico via pricing action taken during recent years. While the pricing reduction had initially caused a slump in the top line, these initiatives are now bearing fruit, by driving transaction growth in the targeted markets.
Despite Western Union’s wide agent network and market dominance in the money transfer industry, the company which derives a huge chunk of business from physical money transfer, faces threats from the proliferating use of electronic cash remittance which includes the use of mobile or Internet. Western Union is aggressively building up its digital platform but it will some take time before it can catch up with more established players offering niche electronic payment services. Electronic channels contributed about 7% to the company’s revenues in the third quarter.
The company is subject to stiff competition from the recently completed acquisition of Xoom by Paypal, which makes the most of its revenues from online purchases. The alliance of Xoom, one of the pioneers in digital money transfer business, with Paypal will create a big player in the digital payment space, where Western Union is still developing.
Nevertheless, intelligent use of capital via share buyback will secure its bottom-line growth.
Western Union carries a Zacks Rank #3 (Hold). Some better-ranked players in the space are Fiserv, Inc. FISV, Heartland Payment Systems, Inc. HPY and Total System Services, Inc. TSS. Each of these stocks carries a Zacks Rank #2 (Buy).
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