The Western Union Company (WU): Judge the Method, not the Outcome

The Western Union Company (NYSE:WU) shares soared 34%, year-to-date, trumping the S&P 500’s gain of 18.5%. Despite the stock’s success, however, it is time for me to bid it farewell.

On Jan. 9 2013, I made a CAPScall on The Western Union Company (NYSE:WU). My investment thesis was simple: it was undervalued. At the time, the company traded at just 6.7 times forward earnings estimates. I believed that the company’s scale, combined with low expectations, would reward investors over the long haul.

Though my pick more than doubled the market’s returns during that time period, I’m not ready to pat myself on the back.

Straying out of my comfort zone
When I buy stock, I think of it like a business, and I plan to hold for the long haul. Likewise, I’ve been trying to practice this philosophy with my CAPS picks, too. Recently, however, I was scrubbing through my picks, and I realized I had to say goodbye The Western Union Company (NYSE:WU). Low expectations or not, it just isn’t looking like a business I want to hold for a lifetime.

The Western Union Company (NYSE:WU)’s second-quarter results left me wanting. Revenue declined 3% year over year due to falling prices. Despite transaction growth, it looks to me like the company’s pricing power may be waning and hampering the top line.

Meanwhile, expenses crept upwards, increasing 3% year over year. With revenue and expenses trending in different directions, the company’s operating margin is suffering. Despite a gallant share repurchase program, reducing the share count by 9%, EPS and operating income were down 18% and 20%, respectively, year over year.