Will a Weak CMT Unit Impact Western Union's Q3 Earnings?

The Western Union Company WU is set to report its third-quarter 2024 results on Oct. 23, after the closing bell. The Zacks Consensus Estimate for third-quarter earnings is currently pegged at 44 cents per share, implying growth of 2.3% from the year-ago reported number. The estimate remained stable over the past month.

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The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $1 billion, suggesting a 5.9% decline from the year-ago actuals.

Western Union beat the consensus estimate for earnings in three of the trailing four quarters, meeting once, with the average surprise being 7.1%, as you can see below.

Q3 Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Western Union this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here, as you will see below.

Earnings ESP: The company has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate currently stands at 44 cents per share in line with the Zacks Consensus Estimate.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Western Union currently carries a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Now, let’s see how things have shaped up before the third-quarter earnings announcement.

What’s Shaping WU’s Q3 Results?

Lower transactions in multiple regions are expected to have affected WU’s Consumer Money Transfer (CMT) segment in the third quarter. Reduced revenues in Europe and the Commonwealth of Independent States regions, the Middle East, Africa and South Asia and Asia Pacific operations are expected to have affected the results.

The Zacks Consensus Estimate indicates that CMT transactions will remain flat year over year at 71 million in the third quarter. This is likely to have affected the company’s top line. The consensus mark for the unit’s revenues implies a more than 6% decrease from the year-ago period’s $1 billion, whereas our model estimate suggests a more than 7% decline.

The consensus estimate for the CMT business’ operating income indicates a 2.1% decrease from the year-ago period, whereas our model estimate predicts a 2.2% fall.

The Zacks Consensus Estimate for revenues from the Consumer Services segment implies 5.1% year-over-year growth. However, the consensus estimate and our model estimate for operating income from the Consumer Services unit suggest a significant decline from the year-ago period.

The above-mentioned factors are likely to have positioned the company for a year-over-year decline and made an earnings beat uncertain. However, our estimate for total operating expense implies a 6.4% decline from a year ago due to lower cost of service, which will provide some impetus to the margins, partially offsetting the negatives.

WU’s Price Performance & Valuation

Western Union's stock has risen 0.1% in the year-to-date period compared with the industry’s growth of 14.6%. Some of its peers, like Remitly Global, Inc. RELY and Euronet Worldwide, Inc. EEFT, have lost 25.7% and 2.4%, respectively. The stock also underperformed the S&P 500 Index, which rallied 22.5% during the same period.

WU's YTD Price Performance

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Let’s look at the value Western Union offers investors at current levels.

Western Union is trading relatively cheaper than industry average. Currently, WU is trading at 6.51X, lower than the industry’s average of 23.94X.

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Investor Considerations

Western Union’s continued investments in digital capabilities, with its branded digital transactions witnessing significant growth, especially with the global rollout of its WU+ digital banking app, bode well. Its focus on cost-cutting has yielded efficiency gains, reducing expenses and customer acquisition costs, contributing to potential margin improvements in 2024.

Collaborations and divestments should help WU sharpen its focus on the global cross-border payments market. However, reduced transactions in a few regions, along with poor performance in Consumer Services, are key headwinds.

Final Words

Given Western Union’s attractive traits of its core business, investors who already have this in their portfolio may want to hold the stock for now and monitor the upcoming earnings results closely. However, prospective buyers may consider waiting for a more favorable entry point and keep an eye on its upcoming earnings.

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The Western Union Company (WU): Free Stock Analysis Report
 
Euronet Worldwide, Inc. (EEFT): Free Stock Analysis Report
 
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