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Western Union: Global Migration Play

An old-line company cashes in on migration trends.

Immigration probe blasts Western Union [stop] Company faces slower U.S. growth [stop] Powerful brand hopes to prosper worldwide [stop] Oops, wrong era. Western Union delivered its last telegram February 2, 2006. Today's Western Union, based in Englewood, Colo., makes its coin by charging individuals and businesses transaction fees to move money over its vast network, which reaches more than 200 countries and territories.

Global migration will keep the wires humming for decades. The United Nations expects the migrant-worker population worldwide to grow from 190 million today to 280 million by 2050. As those workers travel from underdeveloped nations to the developed ones, they will send money to family in remote locales. Recorded remittances by migrants to their home countries more than doubled, to $268 billion, over the past six years, according to the World Bank.

First Data Corp. spun off Western Union, the world's largest wire-transfer company, in September. Since it began trading, Western Union's stock (symbol WU) has gained 21%, to $24 in mid December (giving it a market value of $18.3 billion). Is there room for further gains?

Arizona holds some answers. The state's attorney general wants to seize large money transfers from the U.S. to Mexico as part of an investigation into illegal immigration and drug smuggling. The move has spooked Western Union's Hispanic customers, who account for roughly 30% of its domestic consumer-to-consumer business. As a result, the number of U.S.-to-Mexico transactions increased by a disappointing 4% in the September quarter from the same period in 2005.


The domestic slump will pass, says Bear Stearns analyst James Kissane. "While there has been some backlash against immigration recently in the U.S. and parts of Europe, history indicates it will not last long," he says.

In addition to its walk-up locations, Western Union also does business online. Such transactions rose an estimated 40% in 2006. Currently available in only ten nations, has plenty of growth potential.

Analysts expect Western Union to earn $1.10 per share in 2007, down slightly from 2006 profits because of the sag in domestic business and spinoff costs. But analysts see long-term earnings growth of 13% a year, so 22 times the '07 forecast may not be a bad price for a 155-year-old franchise that has moved from wired messages to instant money transfers.