The Western Union Company Annual Valuation – 2014 $WU

220px-Western_Union_money_transferBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor with High Dividend Yields.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how The Western Union Company (WU) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Western Union Company (Western Union) is engaged in money movement and payment services. The Company’s business payments service provides consumers and businesses with options for making one-time or recurring bill payments, including business-to-business payment transactions, which are primarily cross-border, cross currency transactions. Its segments are consumer-to-consumer and global business payments. Its other businesses not included in these segments primarily consist of Western Union money order and prepaid services available through a network of third-party agents. In April 2011, the Company acquired Angelo Costa, S.r.l. In August 2011, the Company formed Western Union Ventures. In October 2011, the Company acquired Finint S.r.l. In November 2011, the Company acquired the business-to-business payment business of Travelex Holdings Limited, known as Travelex Global Business Payments.
WU Chart

WU data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $16.78
MG Value $22.81
MG Opinion Undervalued
Value Based on 3% Growth $22.07
Value Based on 0% Growth $12.94
Market Implied Growth Rate 1.26%
Net Current Asset Value (NCAV) -$6.78
PEmg 11.02
Current Ratio 1.11
PB Ratio 8.31

Balance Sheet – 6/30/2014

Current Assets $5,208,400,000
Current Liabilities $4,703,500,000
Total Debt $3,719,100,000
Total Assets $9,874,600,000
Intangible Assets $3,969,000,000
Total Liabilities $8,804,400,000
Outstanding Shares 530,300,000

Earnings Per Share

2014 (estimate) $1.40
2013 $1.43
2012 $1.69
2011 $1.84
2010 $1.36
2009 $1.21
2008 $1.24
2007 $1.11
2006 $1.19
2005 $0.98

Earnings Per Share – ModernGraham

2014 (estimate) $1.52
2013 $1.56
2012 $1.57
2011 $1.46
2010 $1.25
2009 $1.18

Dividend History

WU Dividend Chart

WU Dividend data by YCharts


The Western Union Company is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, the lack of a long dividend history, and the high PB ratio while the Enterprising Investor is concerned with the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.25 in 2010 to an estimated $1.52 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.26% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on The Western Union Company (WU)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in The Western Union Company (WU) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.