The Western Union Company (NYSE:WU)

Gowing overseas; Great high margin transaction business

Continued growth f its franchise in developeing countries.

As regulator issues clear up, expect WU to take off as business demand continues to grow as immigrants send more money abroad.

Provides a valued service that can be commoditized....

Globalization of labor market

The reasons are numerous for owning this stock – 285,000 global locations in more than 200 countries, a dominant market position (3 times larger than MoneyGram), Operating margins >30%, and massive free cash flow >1.1 billion. They are straddled with a bit of debt after the spin-off from FDC but should be back to normal levels within 1-2 years which will assist in lifting earnings along with thousands more agent locations. This would be a good core holding for any portfolio.

This is an old company that has had to reinvent itself to stay relevant. I believe technology will outpace the company again. It's hard to see where its profitable niche will be.

Highlights:
- Very profitable: consistently high returns on Equity and Assets. Operating margin percentages in the 30's. A billion dollars in free cash in 2006 for a company with 4.7k employees!!

- Favourable position: immigration is growing in the developed world. Many of the immigrants save more than citizens and are more likely to use low-tech methods to send money back home. WU controls about 15% of the money transfer market between individuals. Its closest competitor controls about a fifth of that.

- A very strong brand across the globe.

- A strong network of agents. High accessibility in distant places. WU's network of agents is 3 times the size of hits closest rival.

- Many of the executives have been in the company a long time by today's standards.

Lowlights:
- Slowing sales growth YOY.
- 3.5 billion dollars in debt owed to First Data.
- Concern about government action against immigration.
- WU's ability to adapt to the Internet will be tested in the coming 5 years as it becomes more ubiquitous in the developing world.

This stock will suffer from fear and loathing because of Arizona's recent attempt at legal actions against money transfers, banks trying for a piece of the action, and uncertain moves against illegal immigrants. It is a solid brand name, and will prevail.

Has a strangle hold on the money wire industry. Coupled with a strong brand name this is a great long term prospect.

Great cashflow, 30 discount fair value. Good growth Fair Price 32

Reasonable valuation for what could be a long term grower. The bigger they get, the larger their competitive advantage.

unique monopoly and expansion to places like Vietnam, China and Mexico.

A good substitute for FDX - riding with globablization.

However, everyone here considers it hot; it makes me nervous.

The company has built a business with network advantages that are hard to replicate (i.e., reach, brand, consumer preference). This in turns allows it to extract economic profit, evidenced by ample margins. Long term immigration trends favor continued growth. Not without risks (lower cost product substitution, immigration containment), but worth the payoff in my view.

Brand, margins, future growth, margins, duopoly, ROE oh and did I say margins.

International wire transfers is a booming business. some risk from the immigration crackdown pending in the US, but the company is well diversified.

I believe this stock has been undervalued since it was spun-off from First Data. Given an estimated 25% margin of safety and the mass movement of immigrant workers worldwide (the primary drivers of growth in this sector), I think this is a great entry point. Look for it to outperform the S&P 500 for the next decade.

The trend of immigrants leaving their homelands to higher-income countries can only but continue increasing in the future. In Europe, the newly admitted eastern european countries and the ones still to come are slowly moving towards the west, albeit strict restrictions from the EU. In the USA, both the already settled immigrants and the newly comers will surely contribute to increasing business for this company, which holds a strong position in the industry with many branches worldwide. In this line of business, the network effect is crucial, and for WU the cost of adding more locations is marginal.

Going with the flow..

They do charge pretty high fees for transfers. However, consumers find this service convenient and are willing to shell out the extra cash for speed.
This seems really attractive for people who would want to send money overseas really fast. Consider the fact that it takes atleast a couple of days for the same transfer if done through a bank.

I think this stock will do really well over the next couple of years.