Western Union Discards 2020 View Due to Coronavirus Insecurity

The Western Union Co. WU has withdrawn its earlier-provided earnings guidance for 2020 following the COVID-19-induced business uncertainty.

For the current year, the company estimated adjusted constant currency revenue growth of low single digit excluding any impact from Argentina inflation besides adjusted operating margin of nearly 21%, adjusted earnings per share in the range of $1.95-$2.05 and adjusted cash flow from operations of nearly $1 billion.

The company’s business remained unaffected through the mid of March except in China and Italy. Nevertheless the rapid spread of the coronavirus-led disease across regions in which the company operates, is making it feel the heat.

Due to lockdown in many countries, to control the spread of the coronavirus, Western Union’s business suffered a great deal. The temporary suspension of activities in several places resulted in lower consumer and commercial operations across multiple markets and also closed down some Western Union Agent locations.

The company faced business weaknesses in its retail money transfer segment in the latter half of March with ramped-down activities. The company expects to endure the ripple effect of this standstill until business conditions improve.  Nevertheless, its digital money transfer business continued to register strong transaction growth through late March as people preferred contactless dealings to physical proximity as a preventive measure in times of coronavirus crisis. Further, the company’s Business Solutions segment, which contributed nearly 7% of 2019 revenues, consistently delivered solid results so far.

Given the ambiguity to what extent the COVID-19 will unleash its effect on the gobal economy, management at the company feels that it is currently incapable of making any projections for 2020 earnings.

Though the pandemic will surely hit the company’s near-to-medium term operations, considering its vast scale with a strong agent network across the globe and a solid brand name will help it weather the prevalent storm.
We believe, the company’s digital platform is its great boon, which has burgeoned in a big way over the recent years. Moreover, customers’ growing preference for moving toward digital remittance will boost revenues from this channel, leading to its rapid expansion.

Western Union also stands tall with respect to its capital position. Recently, the company hiked its quarterly dividend by 13%. Its current payout yield of 3.6% is way higher than the industry average of 0.6%. In March 2019, the company announced a new three-year share repurchase authorization of $1 billion, set to expire on Dec 31, 2021.

Year to date, the stock has lost 26.3% compared with its industry’s decline of 13.3%.

Recently, many other companies, namely American Express Co. AXP, Mastercard Inc. MA and Visa Inc. V slashed their respective earnings guidance due to a decline in cross-border business as travel and entertainment expenditure dwindled due to the coronavirus-caused fears.
Western Union carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the company’s 2020 earnings has witnessed a 2.5% downward revision to $1.94 over the past seven days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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