Western Union (WU) released fourth quarter results on February 7 that appeared mediocre at first glance — but contained several nuggets of good news that the market seems to have overlooked, explains Jim Pearce, growth stock expert and editor of Investing Daily's Personal Finance.
On an adjusted based, Western Union reported quarterly EPS of 49 cents this year compared to 41 cents last year. That 20% gain in earnings was offset by a 3% drop in reported revenue for the quarter, which pushed WU’s share price lower after the results were released.
However, currency adjustments due to the strong dollar and weak Argentina Peso reduced reported revenue by 4%. On a constant currency basis, real revenue actually increased by 2%.
Overshadowed by the headline numbers were some revealing data points that bode well for 2019. During the most recent quarter, C2C (consumer-to-consumer) money transfers via the Western Union website grew by 25%, resulting in a 22% revenue increase on a constant currency basis.
Since online transactions are less expensive than Western Union’s traditional “bricks & mortar” operation, the company’s operating margin improved from 18% to 19.3%.
Western Union is guiding for EPS of at least $1.83 in 2019, which works out to a forward P/E ratio of less than 10 at a recent share price of $18.
The company also announced a 5% increase in its quarterly dividend, which equates to a forward dividend yield of 4.5%. Both of those metrics suggest Western Union is undervalued by about 20%, which is why the stock is a buy up to $22.
