Everyone is talking about China, but for a trio of international companies Mexico is a bigger story. It’s so big that trouble in that single country caused The Western Union Company (NYSE:WU) to lose a third of its value late last year.
South of the Border
The Western Union Company (NYSE:WU) is one of the world’s largest money transfer services. It has around 500,000 locations in over 200 countries, giving it a vast global reach. Ninety percent of its locations are outside of the United States. That said, many immigrants come to this country with the express purpose of sending money back home. The best way to do that is often through a service like The Western Union Company (NYSE:WU).
A Bloomberg article earlier in the year spelled out how important Mexico is on this score. About 60% of the 11.5 million undocumented immigrants in The United States are from Mexico. China, the Philippines, India, and South Korea accounted for about 9%, combined. While Western Union is working to serve people in all of these countries, right now Mexico trumps China in the money transfer space.
One reason for the share decline in late 2012 was the loss of exclusivity with Grupo Elektra, a key partner in Mexico. When the contract ended, Grupo Elektra agreed to deal with competitor Moneygram International Inc (NASDAQ:MGI) in addition to The Western Union Company (NYSE:WU). Another problem was increased regulation, which resulted in the termination of 7,000 of the company’s agent relationships in the country.
This one-two punch opened up a big opportunity for Moneygram International Inc (NASDAQ:MGI), which stepped in with lower prices in an effort to gain market share. The Western Union Company (NYSE:WU)’s top line has been lower year-over-year for the past two quarters, clearly showing the impact of increased competition. Moneygram International Inc (NASDAQ:MGI), however, saw its top line grow year-over-year and sequentially.
The Mexico opening was a big part of MoneyGram’s strength, but that’s not the only reason to like the company. For example, an overly aggressive management team nearly pushed the company into a life and death situation during the global 2007 to 2009 recession. However, with a new, more conservative team in place, the business has gotten the top line back on the growth path and has been working the company toward the black.
Moneygram International Inc (NASDAQ:MGI) isn’t really making money yet, but it is moving in the right direction. The shares are up notably this year and it doesn’t pay a dividend. So, aggressive growth investors and momentum types might be interested. Western Union, meanwhile, despite its Mexican troubles, still makes plenty of money and has been returning value to shareholders via stock buybacks and dividends.
The Western Union Company (NYSE:WU) yields around 2.9%. It, too, has seen a share advance, but should still be interesting to growth and income investors. It will work through the Mexico issue and, like Moneygram International Inc (NASDAQ:MGI), has notable long-term opportunities in markets around the world.