The shares of the Western Union Company (NYSE: WU) is currently trading at $21 per share, about 27% below its pre-Covid-19 peak. A global leader in money movement and payment services, WU saw its shares trading just above $28 in February 2020 just before the pandemic hit and still sits nearly 27% below that. level. The stock has gained 12% since its March 2020 lows against the S&P 500 which has nearly doubled over that period. The easing of lockdown restrictions and the successful deployment of vaccines have boosted economic activity, leading to increased transaction volumes, particularly in the consumer-to-consumer segment. This is also evident from the growth of Earnings from the Western Union Company in recent quarters, half-year revenue grew 8% year-on-year to $2.5 billion. Despite this, the stock underperformed the broader index. Negative investor sentiment is driven by the slow recovery in revenue and point-of-sale transaction volumes in the consumer-to-consumer segment, which are still below pre-Covid-19 levels.
Going back to pre-Covid level means WU stock will have to grow 36% from here. We believe the upside is possible in the near term, once trading volumes return to pre-Covid-19 levels. The company’s consumer-to-consumer segment, which generates nearly 87% of its revenue, was down 3% year-on-year in 2020. This was primarily due to lower demand and restrictions related to Covid-19, mainly affecting its retail business. Locations. That said, this was partially offset by a 38% year-over-year growth in WU’s digital money transfer revenue, driven by an 81% increase in digital transactions. Gradually improving economic conditions and easing of lockdown restrictions are expected to boost POS transaction volumes. Overall, this will likely help WU’s bottom line and cause the stock to rise by around 36% in the short term, making it a good investment opportunity.
But pre-Covid levels can only be reached once transaction volumes from WU’s brick-and-mortar outlets improve or growth in digital payments compensates for lost revenue. Furthermore, it is also important that the economic recovery is not hampered by a sudden increase in Covid-19 cases. Our conclusion is based on the detailed comparison of Western Union Company shares during the 2008 recession compared to now in our dashboard analysis.
Chronology of the Covid-19 crisis so far:
- 12/12/2019: First cases of coronavirus reported in China
- 01/31/2020: WHO declares a global health emergency.
- 02/19/2020: Signs of an effective containment in China and hopes for monetary easing by major central banks help the S&P 500 hit a record high
- 03/23/2020: S&P 500 34% drop since peaking on February 19, 2020, as COVID-19 cases accelerate outside of China. Doesn’t help oil prices crash in mid-March amid Saudi-led price war
- Since 03/24/2020: S&P 500 recover 95% since lows seen on March 23, 2020, with the Fed’s multi-billion dollar stimulus package keeping the economy afloat during the extended lockdown and the vaccination drive allowing things to gradually return to near-normal conditions despite multiple waves of Covid infections.
In contrast, here’s how WU stock and the broader market fared during the 2007/2008 crisis.
Timeline of the 2007-08 crisis
- 01/10/2007: Approximate pre-crisis peak in the S&P 500 index
- 09/01/2008 – 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
- 03/01/2009: approximate trough of the S&P 500 index
- 31/12/2009: Initial rise to pre-accelerated decline levels (around 01/09/2008)
WU and S&P 500 performance during the 2007-08 crisis
We find that WU stock has fallen from levels above $21 in September 2007 (pre-crisis peak) to levels around $11 in March 2009 (when markets bottomed), implying that WU stock is down 47% from its approximate pre-crisis peak. It recovered from the 2008 crisis, to levels above $19 in early 2010, rising 69% between March 2009 and January 2010. The S&P 500 index fell 51% from lows from 1,540 in September 2007 to 757 in March. 2009. It then rebounded 48% between March 2009 and January 2010 to reach levels of 1,124.
Fundamentals of WU in recent years
Western Union Company revenue grew from $5.5 billion in 2017 to $5.3 billion in 2019, primarily due to the sale of a large majority of its US-based electronic bill payment services. United. However, net income fell from -$557.1 million to $1.1 billion over the same period, due to lower operating expenses and the gain on business divestitures. Additionally, the company’s revenue plummeted in 2020, to just $4.8 billion, due to the impact of the Covid-19 crisis. WU reported basic EPS of $1.81 per share during the year.
Does WU have sufficient cash cushion to meet its obligations during the coronavirus crisis?
The Western Union Company’s total debt increased slightly from $3 billion in 2017 to approximately $3.1 billion in 2020, while its total cash increased from approximately $0.8 billion to $1.4 billion. billion over the same period. Additionally, the company reported a cash outflow of $113.4 million from investing and a cash inflow of $877.5 million from operating activity. Overall, the company has strong cash flow from operations and a comfortable cash cushion to meet its short-term obligations.
Phases of the Covid-19 crisis:
- Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in realitythe number of cases accelerating globally
- From the end of March 2020: Social distancing measures + confinements
- April 2020: Fed stimulus removes short-term survival anxiety
- May-September 2020: Resumption of requestwith the gradual lifting of blockages – no more panic with the number of cases which seem to have reached a plateau
- October 2020-February 2021: Unheard of rise in Covid cases forcing a new round of lockdowns across the country
- Since March 2021: Ongoing vaccination campaign and gradual reopenings lead to a demand improvement – buoyant market sentiment
Despite an increase of the number of new cases of Covid-19 in the United States, we expect a gradual improvement in demand to support market expectations. As investors focus their attention on expected full-year 2021 and 2022 earnings, we believe The Western Union Company stock has the potential to fully recover once fears surrounding the Covid pandemic will be appeased.
While The Western Union Company’s action may be worth considering, our analysis of The Western Union company against Visa believes that the latter is a better investment option. Additionally, comparisons with Western Union Company peers summarizes the company’s performance against its peers on important metrics.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.