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Western Union Delivers For Shareholders

Summary

This is an update to my previous article covering Western Union from August 2014, when I concluded that Western Union was a buy.

Western Union has recovered from some stumbles in past years and posted solid numbers during 2014, and that recovery has continued through the first three quarters of 2015.

The company benefits from the developing immigration wave affecting Europe and other industrialized nations, and is maintaining its margins despite fears of increased competition.

After going through third quarter 2015 financial results, current issues, valuation metrics and chart patterns, I reach a conclusion regarding Western Union's appeal at current levels.

Background

I last wrote about The Western Union Company (NYSE:WU) in an article dated 29 August 2014, "Is Western Union Sending You A Message?" I concluded as follows:

For investors who believe in the company's opportunities in the digital and emerging market realms, Western Union is a buy.

The stock closed on the next trading day at $18.44, and most recently closed at $19.25, a gain of 4.4%. In between, it peaked at $22.84, so those looking to trade out could have done much better. WU also pays a healthy dividend well over 3%, generating nice cash flow for patient investors. This article will update that previous article, and I will reach a conclusion as to whether good old Western Union remains a good buy.

Western Union Financials

I like to get a look at my subject's annual numbers. This gives an overview and shows you the "character" of the company. Later, we will zero in on more recent news and issues.

Western Union Fiscal Year Financials

Fiscal YearRevenueNet IncomeEarnings/shareShares OutstandingShares Repurchased
20074,900.2857.3$1.11772.9$ 726.8
20085,282.0919.0$1.24738.2$1,314.5
20095,083.6848.8$1.21701.0$ 400.2
20105,192.7909.9$1.36668.9$ 581.4
20115,491.41,165.4$1.84634.2$ 803.9
20125,664.81,025.9$1.69607.4$ 766.5
20135,542.0798.4$1.43559.7$ 399.7
20145,607.2852.4$1.60536.8$ 495.4

Source: Western Union Form 10-K; all amounts in $million except per share data.

Western Union continued its steady performance in 2014. The company was busy buying back its stock, sending share count down another 4%. Meanwhile, earnings per share recovered from a difficult 2013 and gained 12%. Revenues continued drifting, though they did manage a small gain over the previous year.

Cash flow is always important. For investors, it shows how sustainable the dividend will be and gives clues as to the likelihood of an increase.

Western Union Fiscal Year Cash Flows

Fiscal YearNet Cash From Operating Act.Cap ExFree Cash FlowDividends/shareFCF/Share
20071,103.5192.1911.4$0.04$1.18
20081,253.9153.71,100.2$0.04$1.49
20091,218.198.91,119.2$0.06$1.60
2010994.4113.7880.7$0.25$1.32
20111,174.9162.51,012.4$0.31$1.60
20121,185.3268.2917.1$0.425$1.51
20131,088.6241.3847.3$0.50$1.51
20141,045.9179.0866.9$0.50$1.61

Source: Western Union Form 10-K; all amounts in $million except per share data.

The most interesting thing about the cash flow figures is that they show the power of reducing the share count. While free cash flow in nominal terms during 2014 was lower than in any year in my chart except the previous year, on a per share basis it was the highest of all the years shown. That illustrates in stark terms why a share repurchase program can be a shareholder's best friend.

With financial data from the third quarter of 2015 now available, let's look at that data to see if the previous trends remain intact.

WU Financials for First Nine Months of Year

Source: Western Union Form 10-Q. All amounts in $million except per share data. Cash Flow is Cash Flows from Operating Activities. Ratio is Dividends per share divided by Cash Flow per share.

Western Union raised the dividend at the beginning of 2015, from $0.125 to $0.155. This was justified by the increase in cash flow per share. Once again, the power of buying back shares is apparent: earnings per share increased even though net income fell. The increase in the dividend thus became justifiable despite the drop in Net Income. In addition, cash provided by operating activities went from $775.3 million in 2014 to $804.2 million in 2015, an increase of only 3.7%, whereas the cash flow per share increased 7.6%. Clearly, buying back shares has benefited shareholders.

CFO Raj Agrawal referred to...


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