Western Union (WU) Showing Signs Of Being Water-Logged And Getting Wetter

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Western Union ( WU) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Western Union as such a stock due to the following factors:

  • WU has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $60.2 million.
  • WU has traded 2.6 million shares today.
  • WU traded in a range 278.7% of the normal price range with a price range of $0.67.
  • WU traded below its daily resistance level (quality: 35 days, meaning that the stock is crossing a resistance level set by the last 35 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on WU:

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. The stock currently has a dividend yield of 2.8%. WU has a PE ratio of 12.4. Currently there are 5 analysts that rate Western Union a buy, 4 analysts rate it a sell, and 11 rate it a hold.

The average volume for Western Union has been 5.2 million shares per day over the past 30 days. Western Union has a market cap of $9.5 billion and is part of the financial sector and financial services industry. The stock has a beta of 1.39 and a short float of 12% with 19.25 days to cover. Shares are up 1.3% year-to-date as of the close of trading on Thursday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Western Union as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 12.2%. Since the same quarter one year prior, revenues slightly increased by 1.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • 45.96% 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, the net profit margin of 15.02% trails the industry average.
  • WESTERN UNION CO reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, WESTERN UNION CO reported lower earnings of $1.43 versus $1.69 in the prior year. This year, the market expects an improvement in earnings ($1.45 versus $1.43).
  • In its most recent trading session, WU has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • 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.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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