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Western Union: Future Earnings Promising; Hedge Funds Agree
Stock Analysis & Ideas

Western Union: Future Earnings Promising; Hedge Funds Agree

Western Union (WU) provides money movement and payment services worldwide. I am bullish on the stock.

Dalio’s Position and Hedge Fund Buying

According to TipRanks’ Hedge Fund tool, Ray Dalio, who runs hedge fund Bridgewater Associates, added $1,837,917 worth of Western Union stock to his portfolio during the past quarter.

Dalio wasn’t the only big-time fund manager that gobbled up some of Western Union’s stock float; legendary investor Joel Greenblatt also added $6,599,140 worth of the company’s stock to his portfolio.

According to TipRanks, the general consensus on Western Union stock among hedge fund managers is positive, with 94.4 thousand shares being bought across funds during the third quarter.

Hedge fund buying can’t be looked at in isolation when you’re trying to determine a stock’s price direction, but the indicator certainly does provide a helping hand if you’re looking for cross-validation.

Earnings Review & Outlook

The digital payments pioneer produced $1.3 billion worth of revenue in its third quarter, presenting topline growth of 2%. Furthermore, Western Union is experiencing tremendous growth in business solutions revenue with a 31% quarter-over-quarter gain; this comes as no surprise, as the firm has recently agreed on a deal with Mastercard (MA) to expand its global “Mastercard send” collaboration; in addition, further lockdown re-openings have contributed to business transaction volume. I expect this to be sustained into 2022, amid anti-heavy lockdown rhetoric from most governments.

Additionally, Western Union managed to post a $0.05 beat on its earnings-per-share estimate during Q-3 due to 4.58% quarter-over-quarter net income growth. I anticipate input costs to drop significantly during 2022 as interest rates rise, which will likely cause widening profitability.

Valuation

Adding to my optimism about Western Union stock is the fact that it’s trading at a sector discount.

Western Union stock trades at a price-earnings discount of 65.36%, a price-sales discount of 65.61%, and a price-cash flow discount worth 68.59%. If we consider that the digital payments domain is set for a cyclical upturn, I’d say that this looks like an excellent investment.

Wall Street’s Take

Wall Street analysts are generally bullish on WU stock. In the past three months, there have been 1 buy, 5 holds, and 2 sell ratings.

The average Western Union price target is $21.00, presenting an upside opportunity worth 20.83%.

Concluding Thoughts

Western Union stock has been popular among hedge funds, and understandably so. The firm has produced high-quality earnings, and is set to sustain its growth. Valuation metrics also suggest that the stock is trading below fair value.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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