Halister News

(Bloomberg) -- Western Union’s “WU Way” initiative, which is designed to transform the business and save costs, raises questions about earnings quality, SunTrust analyst Andrew Jeffrey (hold) writes in note after WU’s 2017 guidance disappointed yesterday.

• Unclear whether the program is a one-time thing or reflects “structurally higher expenses”
  • NOTE: Yesterday, WU said it spent $13m on the program in 4Q and plans to spend another ~$100m in 2017
• Cautious despite WU’s “attractive” valuation given higher costs and “eroding competitive position” that will likely pressure revenue/earnings growth and put cap on stock; competition likely what drove 2017 guidance miss
• Separately, Evercore ISI’s Rayna Kumar (hold) sees “WU Way” leading to “low-quality” earnings as it’s excluded from operating income; doesn’t see program directly advancing WU’s low-single digit revenue growth or transaction gains
  • Encouraged by WU’s pricing gains and dividend boost, but cautious on long-term consumer-to-consumer pricing strategy and sees it facing pressure
• NOTE: WU has 4 buys, 15 holds, 9 sells, avg PT $19: Bloomberg data
• NOTE: Jan. 26, Jack Ma Not Making It Easy for Western Union as Shares Slide
• NOTE: Jan. 19, Western Union to Pay $586 Million Over Failure to Stop Fraud