Will High Revenues Support Western Union (WU) Q4 Earnings?

Western Union Co. (NYSE:WU) is scheduled to report its fourth-quarter results on Feb 13, after market close.

The company’s Consumer-to-Consumer segment is expected to witness an increase in transactions, which will be driven by strong growth in westernunion.com. We expect strong transaction growth from North America and Latin American countries, partly offset by declines from Europe, Middle East, Africa and South Asia regions.

The company’s pricing actions should have also contributed to revenue growth. The Zacks Consensus Estimate for revenues from this unit is $1.1 billion, which translates into the year-over-year growth of 1%.

Revenues from another segment, Business Solutions, should improve, led by a growth in business from Argentina, Pago Facil and the U.S. Speedpay bill payments businesses. The strengthening of key foreign exchange rates should also impact earnings in the segment.Additionally, the termination of a partner contract, effective during the fourth quarter of 2016, should impact the revenue negatively.

Cost of services should have shown an increase due to higher bank fees, primarily in the company’s growing United States electronic bill payments services, and severance and related employee benefits and other expenses related to a business transformation initiative referred to as the WU Way. The company has committed to spending approximately $1 million on WU Way (its new business transformation program) in 2017 and these costs, related primarily to the implementation, consulting and severance, will be noted during each quarter. Part of this cost will, therefore, reflect in the quarter’s results.

Also, the bottom line might suffer from elevated compliance spending.

Share repurchases made by the company, from its strong cash flow generation, will aid bottom line earnings.

Company’s Full Year 2017 Guidance

The company expects a low single-digit GAAP revenue growth for the full year 2017, reflecting slight improvement from the previous outlook of flat-to-low single-digit increase and GAAP earnings per share, in a range of $1.50 to $1.60. Given the favorable profitability trends, the company also increased its adjusted earnings per share outlook to a range of $1.75 to $1.85, from $1.70 to $1.80 previously.

Earnings Surprise History

Western Union boasts an attractive earnings surprise history. It surpassed estimates in three of the four reported quarters with an average positive surprise of 9.1%. This is depicted in the chart below:

Here Is What Our Quantitative Model Predicts:

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

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -0.19%. The positive ESP is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Western Union carries a Zacks Rank #4 (Sell). Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks in the same space, which you may want to consider, as our model shows that, they have the right combination of elements to post an earnings beat this quarter:

Global Payments Inc. (NYSE:GPN) is expected to report fourth-quarter earnings on Feb 15. The stock carries a Zacks Rank #3 and an Earnings ESP of +0.62%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

WEX (NYSE:WEX) is expected to report fourth-quarter earnings on Feb 21. The stock carries a Zacks Rank #2 and an Earnings ESP of +0.53%.

Evertec (NYSE:EVTC) is expected to report its fourth-quarter earnings on Feb 21. The stock carries a Zacks Rank #3 and an Earnings ESP of +1.44%.

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