Advertisement
Markets

First Data: International Player

Immigrants and migrant workers are good business for this financial transaction processor.

The business of immigrants without bank accounts transferring funds domestically, or remitting money back home, is a big one. Western Union, which began life as a telegraph company in the mid-19th century, plays a major role in that process. A subsidiary of First Data Corp., Western Union is king of the global non-bank money transfer industry. Now, First Data (symbol FDC) is planning to spin off Western Union in the fourth quarter, a move that Barbara Wachli, manager of Aquila Rocky Mountain Equity fund, thinks will unlock value in the Greenwood Village, Colo., company's shares.

Advertisement - Article continues below

Western Union caters to migrant workers lacking a bank account and often seeking anonymity in transferring cash. Half of its business doesn't involve the U.S. Money transfers to China, India, Mexico and the Philippines are soaring. "Everybody is in motion these days," says the Arizona-based Wachli.

For that convenience and service, Western Union extracts relatively high fees, and is able to put to work an enormous cash float. Revenues are expanding 15% to 20% a year. The division's operating profit margin (profits from operations divided by revenues) is a lush 31%. And the business generates copious free cash flow (the cash profits that are left after making the necessary investments to maintain the business).

Advertisement
Advertisement - Article continues below

First Data is also a leading processor of credit card transactions. Wachli notes that, unlike the consumer-oriented Western Union business, the credit-card processing operations cater to financial-services providers, such as Wells Fargo, that may compete with First Data in the consumer money-transfer business. Thus, she sees strategic and diplomatic benefits in the plan to set free the Western Union division, which will be headed by Christina Gold, a former Avon executive.

First Data stock trades at about $42, or 18 times analysts' average 2006 earnings estimate of $2.32 per share. Based on her 2007 earnings projections, Wachli thinks that Western Union alone could be worth $34 a share and the rest of First Data $26. Add that together and you get a $60 stock.

Advertisement

Most Popular

65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
8 Ways You Might Be Cheating on Your Taxes
taxes

8 Ways You Might Be Cheating on Your Taxes

Don't fall into these common traps that can get you in hot water with the IRS.
July 8, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

Closing Bell 7/10/20: Gilead Gives Stocks a Booster Shot
Markets

Closing Bell 7/10/20: Gilead Gives Stocks a Booster Shot

Stocks rallied out of negative territory Friday after Gilead announced that remdesivir helped reduce COVID-19 mortality risk in a clinical trial.
July 10, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 10, 2020
Closing Bell 7/9/20: Another Split Market as Jobs Concerns Grow
Markets

Closing Bell 7/9/20: Another Split Market as Jobs Concerns Grow

A mounting list of planned playoffs weighs on stocks Thursday, though Big Tech manages to hoist the Nasdaq up to another record high.
July 9, 2020
Closing Bell 7/8/20: Tech Stocks Lead Wall Street Forward Again
Markets

Closing Bell 7/8/20: Tech Stocks Lead Wall Street Forward Again

U.S coronavirus cases continue to spike, but Apple helped lead another Big Tech rally to drive the major indices higher Wednesday.
July 8, 2020