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Western Union Company Stock Buy Recommendation Reiterated (WU)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Western Union Company (NYSE: WU) has been reiterated by TheStreet Ratings as a buy with a ratings score of B-. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

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Highlights from the ratings report include:

  • Net operating cash flow has increased to $237.30 million or 10.37% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -4.95%.
  • 47.50% is the gross profit margin for WESTERN UNION CO which we consider to be strong. Regardless of WU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WU's net profit margin of 15.99% compares favorably to the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 13.0%. Since the same quarter one year prior, revenues slightly dropped by 4.9%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the IT Services industry and the overall market, WESTERN UNION CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, WU has underperformed the S&P 500 Index, declining 6.45% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.

The Western Union Company provides money movement and payment services worldwide. The company operates in three segments: Consumer-to-Consumer, Consumer-to-Business, and Business Solutions. The Consumer-to-Consumer segment offers cash money transfer services involving walk-in agent locations. Western Union has a market cap of $9.0 billion and is part of the financial sector and financial services industry. The company has a P/E ratio of 10.00, below the S&P 500 P/E ratio of 18.00. Shares are up 18.3% year to date as of the close of trading on Friday.

You can view the full Western Union Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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