Western Union (WU) – Closing Long Position – up 12% vs. S&P up 57%

We made Western Union (WU: $22/share) a Long Idea on September 12, 2018 and reiterated our opinion on October 2, 2019. At the time of both reports, WU earned a Very Attractive rating. We believed Western Union’s GAAP earnings understated its true profits, regulations across the industry provided a strong competitive moat, and the stock traded at a significant discount.

This report, along with all of our research[1], leverages our more reliable fundamental data[2] to get the truth about earnings, as shown in the Journal of Financial Economics paper, “Core Earnings: New Data and Evidence.”

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During the nearly 3 year holding period, WU underperformed as a long position, rising 12% compared to a 57% gain for the S&P 500.

While the firm still earns a Very Attractive rating, its business has shown weakness in recent years, with revenue falling year-over-year in three of the past five years and growing just 1% and 2% YoY in the other years. Rapidly changing payment technologies, growth in decentralized finance, and the ubiquity of payment transfer platforms pose further challenges going forward.

With headwinds facing the business, the stock no longer provides the same risk/reward it once did, and we’re closing this long position.

Figure 1: WU vs. S&P 500 – Price Return – Unsuccessful Long Idea

Sources: New Constructs, LLC and company filings

Note: Gain/Decline performance analysis excludes transaction costs and dividends.

This article originally published on September 3, 2021.

Disclosure: David Trainer, Kyle Guske II, and Alex Sword receive no compensation to write about any specific stock, style, or theme.

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[1] Harvard Business School features our Robo-Analyst research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.

[2] Three independent studies from respected institutions prove the superiority of our data, models, and ratings. Learn more here.

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