MoneyGram International

(MGI) - Get Report

provides global funds transfer and payment systems, serving more than 250 million customers each year at its 110,000 locations worldwide. The company competes directly with

Western Union

(WU) - Get Report

and the U.S. Postal Service.

Despite being a major player in its space, MoneyGram has disappointed its investors. At $28.78, shares are down 7.8% year to date and 18% off the 52-week high, trading at 18.6 times expected 2007 earnings of $1.54. This represents a 9% discount to Western Union and is 11% below MoneyGram's historical average valuation.

Given these returns, I'm here to answer the big question for investors. Should you buy it? Is MoneyGram attractive at these reduced levels, or could the stock continue to fall in the coming months?

The company reported its latest quarterly results April 18. MoneyGram earned 35 cents a share in the first quarter, which was in line with analyst expectations. Revenue grew 17.6% from the previous year to $310.1 million, which was $5.3 million ahead of the consensus analyst estimate.

The strong numbers were driven by 30% year-over-year growth in transaction volume. The company has been consistently growing faster than Western Union in U.S.-based transfers, aided by its close relationship with

Wal-Mart

(WMT) - Get Report

. According to a recent upgrade by the brokerage JMP Securities, MoneyGram "currently

has 196 MoneyCenters in Wal-Mart's 4,000 U.S. locations, and we are told there should be around 450 by year-end."

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.

The company also has been expanding its presence overseas, where it generated 21% of its 2006 revenue. MoneyGram's international growth rate has accelerated in each of the past four quarters. MoneyGram has also benefited from the weak dollar.

While the money transfer business generates steady fees, the company's growth potential does face risks. MoneyGram and its competitors are experiencing increased compliance costs and the potential for loss of business due to government regulations, especially with Congress eyeing a tightening of immigration policies and the quest to freeze potential terrorist funding after Sept. 11, 2001.

Despite these risks, I maintain that MoneyGram is attractive to purchase at current levels -- a view that management apparently shares, since the board added 5 million shares to the company's buyback program in May. MoneyGram now has a total of 12 million shares in its repurchase plan, equal to some 14% of the company's outstanding stock. MoneyGram also pays a 5-cent quarterly dividend, or a 0.7% annual yield.

Despite the stock's recent weakness, I believe the company has a lot of momentum moving into the second half of the year. MoneyGram should continue to benefit from its relationship with Wal-Mart, as well as its rapidly expanding international presence.

Finally, if MoneyGram's business is growing faster than Western Union's, I believe it should ultimately trade at a premium to its larger competitor. MoneyGram shares should move up toward the mid-$30s by the end of the year.

David Peltier is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback;

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