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Western Union Messages an Earnings Miss, but Analysts See Positive Signs

Western Union shares are lower after its earnings report, but analysts find some positives.
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Western Union (WU) - Get Free Report shares were sending out an SOS after the money-transfer company missed Wall Street's earnings forecasts, but analysts tapped into some positive news in the  results.

The Denver company's shares were down 8.2% to $25.93 at last check, pegging them as the S&P 500's worst performer.

But Mark Palmer, an analyst with BTIG, said in a note to clients that Western Union's earnings-and-revenue miss was mitigated by management’s fiscal 2020 adjusted-earnings guidance, where the midpoint was above estimates.

Palmer, who affirmed his buy rating, said his $31 price target for Western Union is based on his sum-of-the-parts valuation, where "we separately value the company’s traditional money-transfer business and its rapidly growing digital business."

Western Union reported fourth-quarter earnings of 38 cents a share, down 23% from a year earlier and missing the FactSet-derived consensus analyst forecast of 43 cents. 

The company posted quarterly sales of $1.31 billion, down 6.7% from a year earlier and missing Wall Street's call for $1.32 billion.

"Importantly, we began implementing a number of initiatives from our new strategy and productivity program, and we start 2020 with good momentum for achieving the 2022 targets we laid out at our September investor day," CEO Hikmet Ersek said in a statement.

In addition, Western Union affirmed its three-year financial targets, including operating margin of about 23% in 2022 and a low-double-digit earnings per share compounded annual growth rate for the three years ending 2022.

For 2020, the company said it expected adjusted earnings per share to range from $1.95 to $2.05. That's a range of flat to a low-single-digit decline, due primarily to the divestiture of its domestic bill payments business, Speedpay, in May.

Deutsche Bank analyst Bryan Keane increased his price target to $28 from $25 as he noted greater confidence in the company's three-year margin trajectory. 

Despite what he called "a slightly softer quarter," Keane said total digital money transfer revenue increased 25% and the company's three-year outlook remains unchanged.

Susquehanna analyst James Friedman, who reiterated a neutral rating and price target of $26, said modest pressure on sales was due to weaker transaction growth. This was offset partly by price hikes in the quarter, he said.

"Thus leads us to wonder: Are the price hikes Western Union has been pushing through offensive or defensive?" he asked. "And could it cost them market share in the long run?"