Top Picks 2007: Janssen likes Western Union's wide moat

Posted Dec 26th 2006 8:30AM by Steven Halpern
Filed under: Newsletters, ETF Investing, Western Union (WU)

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Western Union (NYSE: WU) is the top conservative pick for 2007 from Cory Janssen. In the Investopedia Advisor, he explains, "Spun off from First Data Corp. in October, Western Union is an outstanding company to own as a long-term holding.

"Its powerful brand recognition gives it a critical advantage in an industry where customer trust is of such high importance. As well, the company's enviable distribution network leaves it very well-positioned to capitalize on the ongoing growth in international money transfers.

"The business does face some short-term risks. Recent political debate surrounding U.S. immigration policy has prompted a decline in the frequency of money transfers from the U.S. to Mexico, and this has weighed on the company's recent quarterly numbers. We feel that this is a temporary blip.

"We originally followed Western Union when it was part of First Data. The thing we noticed was that the strong performance of the Western Union division was buried within the larger corporate structure. The spin-off should continue to serve as a catalyst for the stock as it will no longer be weighed down by First Data.

"Trading with a forward P/E ratio of 21, Western Union offers a solid opportunity for 13 to 15% annualized earnings growth over the long term. Multiple expansion is plausible in the coming year as well, as the stock is currently trading below the data processing industry's average forward P/E of 23.

"We feel Western Union's unique advantages and wide economic moat warrant a steeper valuation than the average firm in its industry, and we see its shares having the potential to appreciate by 15% or more per year, with limited downside risk due to the company's rock solid operating performance and wide economic moat."

Dislaimer: Cory Janssen currently owns shares in the stock mentioned in this article. To see Cory's favorite speculative idea for 2007, click here.

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