Financial Services Stocks

The Western Union Co Valuation – April 2018 $WU

Company Profile (excerpt from Reuters): The Western Union Company (Western Union), incorporated on February 17, 2006, is a provider of money movement and payment services. The Company operates through three segments: Consumer-to-Consumer, Consumer-to-Business and Business Solutions. Western Union’s Consumer-to-Consumer segment is engaged in individual money transfers from one consumer to another. The Company’s Consumer-to-Business segment provides options to make one-time or recurring payments from consumers to businesses and other organizations, including utilities, auto finance companies, mortgage servicers, financial service providers and government agencies. Western Union’s Business Solutions segment facilitates payment and foreign exchange solutions, primarily cross-border, cross-currency transactions, for small and medium size enterprises and other organizations and individuals.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of WU – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,018,657,069 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.79 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -74.60% Fail
6. Moderate PEmg Ratio PEmg < 20 27.37 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -18.10 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.79 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.32 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.71
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $10.25
MG Value based on 0% Growth $6.01
Market Implied Growth Rate 9.43%
Current Price $19.34
% of Intrinsic Value N/A

The Western Union Company does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.59 in 2014 to an estimated $0.71 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.43% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into The Western Union Company revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.7 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 27.37, which was above the industry average of 22.34. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-10.21.

The Western Union Company scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$10.21
Graham Number $0.00
PEmg 27.37
Current Ratio 0.79
PB Ratio -18.10
Current Dividend $0.70
Dividend Yield 3.62%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $5,027,100,000
Total Current Liabilities $6,332,400,000
Long-Term Debt $3,033,600,000
Total Assets $9,231,400,000
Intangible Assets $3,314,200,000
Total Liabilities $9,722,800,000
Shares Outstanding (Diluted Average) 459,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.80
Dec2017 -$1.19
Dec2016 $0.51
Dec2015 $1.62
Dec2014 $1.59
Dec2013 $1.43
Dec2012 $1.69
Dec2011 $1.84
Dec2010 $1.36
Dec2009 $1.21
Dec2008 $1.24
Dec2007 $1.11
Dec2006 $1.19
Dec2005 $1.21
Dec2004 $0.00
Dec2003 $0.00
Dec2002 $0.65

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.71
Dec2017 $0.37
Dec2016 $1.22
Dec2015 $1.60
Dec2014 $1.59
Dec2013 $1.56
Dec2012 $1.57
Dec2011 $1.46
Dec2010 $1.25
Dec2009 $1.20
Dec2008 $1.11
Dec2007 $0.93
Dec2006 $0.76
Dec2005 $0.49
Dec2004 $0.13
Dec2003 $0.17
Dec2002 $0.22

Recommended Reading:

Other ModernGraham posts about the company

The Western Union Company Valuation – December 2016 $WU
Western Union Company Analysis – 2015 Update $WU
19 Companies in the Spotlight This Week – 8/9/14
The Western Union Company Annual Valuation – 2014 $WU

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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