Monday, January 29, 2007

Calls of Note Part 1

Couple of comments on Western Union (NYSE:WU) ahead of results:

- William Blair notes Western Union's fourth-quarter results will not only be the company's first results to show the full impact of the spin-off from First Data Corp., but also will be very closely watched as indicative of the overall health of the money transfer market. This remains a controversial topic, as other money transfer business operators have in their most recent results conceded impacts from price competition, macroeconomic weakness, and immigration-related effects. Firm expects, however, that Western Union will be able to report a stabilizing-albeit weak-environment and that this can be a first step in restoring confidence among investors. The stock's recent performance likely reflects this near-term outlook, but does not yet, in their opinion, reflect the exceptional long-term opportunity that they believe faces the company, especially internationally. Firm believes long-term investors will be rewarded and reiterates Outperform rating.

- Merrill Lynch notes they expect Western Union to report pro forma EPS of $0.26 on revenues of $1,179mn. Their pro forma EPS matches the First Call consensus estimate. ML thinks investors continue to undervalue the global WU franchise and its long-term growth potential. Guidance should not be a concern as the company has already called for 10-12% organic revenue growth and 12-14% EPS growth in 2007.

While flagging growth in the Mexico corridor and in the domestic business has caused revenue and margin pressure recently, the firm thinks the market is overlooking WU's long-term growth potential as revenue growth outside of these areas remains robust. Last week, WU's competitor MoneyGram reported strong transaction and revenue growth in money transfer and they believe this strong performance can be attributed to MGI's global network. They hear more and more about pricing pressure, but believe this is largely captured in their estimates.

WU announced a few weeks ago that an Arizona court ruled in its favor and is prohibiting the Arizona Attorney General's Office from seizing money transfers "not sent from or intended for payment in the state." ML believes the worst is over and expect domestic and U.S.-to-Mexico transaction levels to build from here.

Sees weakness ahead of the qtr a buying oppy.

Notablecalls: Western Union is set to report its fourth quarter results after the market close on Weds, Jan 31st. Not actionable but good to know category.

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