The Western Union Company (WU) Is Set to Soar

However, Xoom Corp (NASDAQ:XOOM) may seem to pose a threat to Western Union’s services. The company provides mobile money-transfer solutions on smartphones and tablets,  which eliminates the need to go to physical locations. Additionally, not having these physical locations saves a lot rental and hiring costs for Xoom Corp (NASDAQ:XOOM). It is due to this reason that Xoom enjoys a hefty gross margin of 67%, while Moneygram and Western Union operate with a 43% margin each. But it’s also worth noting that Western Union also has a mobile app that services mobile transfers with ease.

Meanwhile shares of Moneygram International Inc (NASDAQ:MGI) recently breached their 52-week high. The company recently hired Bank of America Corp (NYSE:BAC) to explore its options pertaining to the partial sale of its equity. According to this source, private equity firms including Carlyle Group, TPG Capital, Bain Capital and GTCR have already bid for a stake in the company.

Moneygram has been hemorrhaging cash for the last five years, and its last equity sale was worth $1.5 billion in 2008. Since the company recently posted a net loss of $72 million despite having record revenue of $1.3 billion (FY 2012), it’s not hard to conclude that Moneygram needs to be refinanced again. It is due to this reason that its shares are upbeat.

Final words

In my opinion, Moneygram’s stake sale may entail further upside, but it is also speculative in nature and involves a great deal of risk. Shifting focus to its larger peer, I firmly believe that The Western Union Company (NYSE:WU) stands to benefit from the booming Indian market. Its shares appear to be undervalued with a forward P/E of 10.6x and a PEG of 0.9x, while its dividend yield of slightly less than 3.0% seems lucrative. In my opinion, Western Union deserves a buy rating.

The article Western Union Is Set to Soar originally appeared on Fool.com and is written by Piyush Arora.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Western Union. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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