Rating Change #9
Western Union Company (WU) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and a generally disappointing performance in the stock itself.
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Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 10.1%. Since the same quarter one year prior, revenues slightly increased by 0.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the IT Services industry average. The net income increased by 12.4% when compared to the same quarter one year prior, going from $239.70 million to $269.50 million.
- WESTERN UNION CO has improved earnings per share by 18.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, WESTERN UNION CO increased its bottom line by earning $1.84 versus $1.36 in the prior year. For the next year, the market is expecting a contraction of 8.7% in earnings ($1.68 versus $1.84).
- WU's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 28.52%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The debt-to-equity ratio is very high at 2.99 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.