The Western Union Company (WU), Moneygram International Inc (MGI), Xoom Corp (XOOM): This Global Money Transfer Leader Is Really a Buy

MoneyGram is trading at nearly $19 per share with a total market cap of around $1.2 billion. The market values MoneyGram quite similarly to Western Union, at 6.86 times EV/EBITDA and only 0.78 times sales. Thus, Western Union seems to be a much better bet with its market leading position in the global money transfer industry. According to Barron’s, Western Union had around 15% of the global market share while Moneygram International Inc (NASDAQ:MGI) owned only 5% of the market.

Xoom – a new player with an expensive valuation

A new player in the sector is Xoom Corp (NASDAQ:XOOM), which focuses mainly on digital C2C international money transfer, operating in 30 countries. Like Western Union and MoneyGram, Xoom Corp (NASDAQ:XOOM) has benefited from the increasing demand for people to send their money home, resulting from the increasing global immigration. In the period 2009-2011, Xoom Corp (NASDAQ:XOOM) has nearly doubled its revenue from $26.3 million to more than $50 million while net loss has dropped from $5.5 million to $4.4 million. Xoom uses little debt in its operations. As of March 2013, it had $146.9 million in equity, $84 million in cash, $51.5 million in short-term investments, and only $25 million in non-current portion of line of credit.

Xoom is trading at $20.50 per share with a total market cap of $676 million. As Xoom Corp (NASDAQ:XOOM) has not generated positive EBITDA, its EBITDA multiple is not valid. Xoom seems to be quite expensively valued at as much as 7.5 times sales, more than 6 times higher than the P/S ratios of both Western Union and MoneyGram.

My Foolish take

Among the three, The Western Union Company (NYSE:WU) is still my favorite stock. Western Union enjoys a leading position with huge economies of scale. Moreover, investors could get a decent dividend yield at 3.20% while Moneygram International Inc (NASDAQ:MGI) and Xoom Corp (NASDAQ:XOOM) do not pay any dividend to shareholders. I personally think Western Union should have higher valuation than MoneyGram. If an EV multiple of 9 is used, Western Union could be worth more than $21 per share.

The article This Global Money Transfer Leader Is Really a Buy originally appeared on Fool.com and is written by Anh Hoang.

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