Western Union Co. (WU) shares plunged after the company reported third quarter earnings and guidance. For the past few weeks, this stock regularly traded around $17 to $18 per share, but the stock has dropped below $13. The recent sell-off appears exaggerated and the big drop has created a potential buying opportunity. Here is a closer look at the company and a few reasons why the stock could be poised for a rebound in the coming days and weeks:
Western Union has been in business for about 160 years, and it has grown to have around 510,000 agent locations in over 200 countries around the world. This company offers a range of services and it is one of the most popular ways to send money to others across the country or around the world. Western Union allows consumers to send and receive money, pay bills, and it also provides money orders, pre-paid cards, phone cards, and gift cards. For businesses, it offers foreign exchange, international payment services, and other payment and currency-related services. This company is positioned to continue serving consumers that may not have traditional banking relationships, and those who transfer money both domestically and abroad.
The company announced it earned 45 cents per share for the third quarter of 2012. This compares favorably with earnings of 40 cents in the same quarter last year. The company saw a decline of about 4% (year over year) in consumer-to-consumer transactions due to global economic weakness, particularly in parts of Europe. On the positive side, electronic transactions grew by about 25% during the quarter. Overall, the quarter appeared solid and the company also announced it would raise the dividend by about 25%, from 10 cents to 12.5 cents per quarter. It also said it authorized a share buyback worth $550 million. With a current market capitalization of about $7.7 billion, the $550 million share buyback represents nearly 8% of the company. Share buybacks can boost earnings in the future and create shareholder value.
The decline in the stock appeared to be a result of disappointing guidance in which the company reduced expectations for GAAP earnings from a range of $1.68 to $1.72 per share, down to a range of $1.60 to $1.63.
While traders and shorts were focused on the reduced guidance in the short-term, longer-term investors are likely to take back control of the share price as the focus returns to the dividend yield of about 4%, and the below-market price to earnings ratio which is now just around 8. This company also poised for growth in the future as its services become increasingly popular in emerging market countries like India. These factors and the big drop in the stock price have created a buying opportunity that investors should now consider. The 4% yield will reward shareholders while waiting for a higher share price.
Key Data Points For Western Union From Yahoo Finance:
Current Share Price: $13
52-Week Range: $12.48 to $19.82
Dividend: 50 cents per share which yields about 4%
2012 Earnings Estimate: $1.60 to $1.63 per share
2013 Earnings Estimate: $1.74 per share
P/E Ratio: about 8 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I am long WU.