Western Union: Technical indicators generate a Buy rating

Posted Jul 9th 2009 5:40PM by Joseph Lazzaro
Filed under: Western Union (WU), Stocks to Buy

This is a case in which the technical indicators have tipped the scale vs. the fundamentals. I'm issuing a Buy recommendation for Western Union (NYSE: WU) after the stock held a key technical support level.

That support level: the 200-day moving average - the toughest average to break in trading. After trending lower for about two months, veering toward the 200-Day MA, WU has closed above the 200-day moving average for four consecutive days, not including today. And, trading at $16.50 Thursday afternoon, WU is likely to close above the average, at $15.13, again.

Western Union's fundamentals are mixed: revenue is likely to fall 6% in FY 2009 and increase 3-5% in FY2010 - not the best outlook nor growth scenario, and not enough to build on, despite a restructuring, cost cuts, and a solid market position (375,000 agent locations in more than 200 countries) in the money transfer segment.

However, the 200-day MA has held and that suggests institutional investors may know something that others don't, hence the Buy. However, don't buy WU if you can not tolerate moderate risk. The First Call FY2009/FY2010 EPS estimates for WU are $1.26 to $1.39.

Stock Analysis: Western Union is a moderate-risk stock. Consider buying a 25% position in WU now; then buy another 25% in four months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your WU position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $9.

- -

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Print this