What's In The Offing For Western Union's (WU) Q4 Earnings?

Western Union Co.’s (NYSE:WU) fourth-quarter 2018 earnings release on Feb 7, 2019 is expected to see accretion from its digital expansion, leveraging its payments platform with new partners, adding cross border payment opportunities and driving operational efficiency with WU Way.

The Zacks Consensus Estimate for earnings per share and revenues are pegged at 49 cents and $1.43 billion, respectively. Though the bottom line shows 19.5% growth, the top line is likely to dip 0.9% year over year.

Factors Influencing Q4 Results

Low Growth at Consumer-to-Consumer Segment: Western Union’s key Consumer-to-Consumer (accounting for nearly 80% of the company’s revenues) segment is anticipated to suffer very soft revenues on sluggish transaction growth. Revenue uptick from certain locations such as Latin America, Europe and North America might be to some extent offset by an estimated decline in the Middle East, Africa and Asia-Pacific zone. Also strengthening of U.S. dollar is feared to act as a headwind to results. The Zacks Consensus Estimate for revenues from this segment stands at $1.16 billion, translating into year-over-year growth of just 0.9%.

Digital Expansion: The company’s digital business has been consistently impressive in its run with 21% revenue growth in the first nine months of 2018. And westernunion.com is increasingly becoming integral to the company’s business, representing 12% of total money transfer revenues in the quarter to be reported, up from 6% just three years ago. The company has expanded westernunion.com across 50 countries and territories. It also has many other digital opportunities in progress. The company recently opened its unique global money movement platform to new partners. It also collaborated with Amazon (NASDAQ:AMZN) for the use of network regarding online purchases. A significant flourish in global digital initiatives is likely to drive revenues further from this platform in the to-be-reported quarter.

Cost Savings: The company’s bottom line is projected to gain traction from cost savings generated by WU Way endeavors. In the first nine months of 2018, the company achieved approximately $36 million of incremental savings. On an absolute basis, it hopes to reap approximately $60 million of savings from WU Way for the full year, which points to nearly $24 million of cost savings in the fourth quarter.

Share Buyback: The company’s adequate financial flexibility allows it to indulge in share repurchase from time to time. In the first nine months of 2018, the company bought back shares worth $100 million. We expect the stock repurchased by the company in the fourth quarter to provide an extra cushion to its earnings.

Guidance

For 2018, the company envisions earnings per share in the range of $1.8 and $1.95, net cash flow from operations of $600 million, operating margin of nearly 20% and low-to-mid single-digit revenue growth on a constant currency basis.

Earnings Surprise Histroy

The company surpassed estimates in two of the last four reported quarters, the avearge positive surprise being 1.63%. This is depicted in the chart below:

The Western Union Company Price and EPS Surprise

The Western Union Company Price and EPS Surprise | The Western Union Company Quote

Here is What Our Quantitative Model Predicts

Our proven model does not conclusively show that Western Union is likely to beat on earnings this reporting cycle. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Western Union has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though Western Union carries a Zacks Rank of 3, which increases the predictive power of ESP, its 0.00% Earnings ESP makes surprise prediction difficult.

Stocks That Warrant a Look

Here are some companies from the financial services that you may want to consider as these have the right combination of elements to beat on earnings this time around:

Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is set to report fourth-quarter earnings on Feb 7 and has an Earnings ESP of +0.63%. The company is a Zacks #3 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

Radian Group Inc. (NYSE:RDN) has an Earnings ESP of +3.03% and a Zacks Rank of 1. The company is anticipated to release fourth-quarter earnings on Feb 8.

AerCap Holdings N.V. (NYSE:AER) has an Earnings ESP of +6.84% and a Zacks Rank #2. The company is slated to announce fourth-quarter earnings on Feb 14.

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