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Stock Strategist

No News Is Good News for Western Union

The near term's not so bright, but we still like the long-term picture.

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The relative lack of news in  Western Union's (WU) fourth quarter can be taken as good news, in our view. Excluding currency effects, revenue increased 1% year over year. In the core money transfer segment, revenue was flat excluding currency effects, as a 9% increase in transaction volume was offset by the pricing actions the company took earlier in the year and, to a lesser extent, a shift toward lower-price corridors. In the corridors affected by these pricing actions, Western Union continued to see good traction, with transaction volume up 20%, in line with growth in the last quarter, suggesting that these actions are having the desired effect.

Western Union also saw some acceleration in electronic channels, which saw revenue growth of 32% year over year. While this segment is still too small to move the needle on overall results, we think the strong performance supports our view that Western Union can successfully adapt its business model in the event of industry shifts in this direction. The quarter saw some acceleration in the business-to-business segment as well, which grew 12% year over year excluding currency effects, although the company has a ways to go to justify its investment here. Excluding one-time charges, operating margins came in at 19.1% compared with 20.0% last year, as a result of the negative impact of lower pricing and the step-up in compliance costs. Overall, the company finished the year in line with our expectations, and we are maintaining our $22 fair value estimate and Wide Economic Moat Rating.

Brett Horn does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.