Earnings Preview: Western Union Results Riding on Margins, 2010 Guidance

Expect Western Union (WU), the global leader in consumer money transfers, to report 4Q 2009 results at or slightly above expectations on Wednesday, maintaining its dominant position in the industry, but with profit margins declining. What will probably be more important to investors is the guidance for 2010 that the company delivers, as a number of industry challenges that affect the company's growth have presented themselves.J.P. Morgan is expecting Western Union to report earnings of 33 cent per share, slightly higher than the analysts' consensus of 32 cent per share. It also expects revenue growth of 3.7% or $1.34 billion for the quarter, slightly higher than the consensus of $1.3 billion.

"We think margins may deteriorate year-over-year given headwinds from multiple sources," said an analysts note from J.P. Morgan. However, it added that while the company was cautious about the stock prior to receiving the guidance, "lower expectations should set the stock up nicely for outperformance in CY10."

Western Union increased its dividend from four cents per share to 26 cents per share in December and will buy back $1 billion shares to strengthen the stock. While those moves are viewed as positive, analysts eagerly await the company's guidance for 2010, where it must lay out a strategies for dealing with a number of things, including entering the international business-to-business market through its acquisition of Custom House Ltd., preventing a weaker global economy from cutting into the volume of money transfers, fluctuating foreign exchange rates and price changes in the U.S. market.

J.P. Morgan has a price target of $23 on Western Union.

In an analysts note, Greg Smith at investment bank Duncan Williams said, the Custom House acquisition would definitely help Western Union's 4Q numbers. It also said the company had continued to gain market share. While cautioning that it would take several quarters before a major improvement in earnings would materialize, the note said "We expect the company to grow EPS by 9% in 2010 driven by a modest uptick in transaction growth, strict control on expenses, and a lower share count owing to aggressive share buybacks."

Duncan Williams has a price target of $22 on Western Union.
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