The Western Union Co. WU is likely to remain affected by the recent COVID-19-led business losses. The company being the biggest player in the remittance market is anticipating a revenue erosion as the remittance market expanse is expected to shrink.
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At the end of April 2020, the World Bank issued a forecast projecting a 20% decline for current-year global remittances. This cutback in remittance is likely to weigh on the company’s revenues from the Consumer to Consumer (C2C) segment. The latest forecast for 2020 global remittances varies from a decrease of 3.5% to 20%.
This shrinkage in the global remittance market will put pressure on revenues from the company’s C2C , which accounts for 85% of the company’s revenues. In the first quarter of 2020, revenues from the segment dipped 3% year over year.
Though Western Union is ramping up its digital remittance platform, it reflects nearly 15% of the company’s revenues in 2019. Therefore, a chunk of the company’s business, representing 85%, is still in the form of physical transfer, which is likely to take a hit from reduction in money transfers due to the coronavirus outbreak.
Given the performance trends and the rise in uncertainty caused by the COVID-19 pandemic, the company withdrew its 2020 financial outlook on Mar 27.
Nevertheless, the company’s strong balance sheet is well supported by a solid annual operating cash flow, a favorable investment grade credit rating and an undrawn revolving credit facility, which should help it withstand the difficult operating environment.
A number of initiatives taken by the company, such as expansion of digital platform, cost-saving initiatives, enhancement of global network, etc. bode well for operating in a market worth $700 billion of annual principal. Although Western Union is a force to reckon with in the remittance market, the company has ample scope to evolve further with lots of opportunities at its disposal. It may also expand its share in the cross-border payments market.
However, the near-term uncertainty looming on the company’s performance will persist. The industry participant is also facing stiff competition from players like PayPal Holdings Inc. PYPL and Square Inc. SQ, which are well-equipped with vast and sophisticated digital platforms for executing remittance business.
For the current year, the company’s earnings are expected to decline 3.47% compared with the industry’s decrease of 12.3%.
Also, shares of the company have lost 30.3% in a year compared with the industry’s decline of 8.7%.
Western Union carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Repay Holdings Corporation RPAY, flaunting a Zacks Rank #1 (Strong Buy). The stock’s bottom line surpassed estimates in the last reported quarter by 13.33%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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