Western Union (WU) - Took a Position

I established a fairly sizable position, relative to my account size, in Western Union (WU) this week. Western Union is a stock that I had mentioned some months ago when it was first spunoff but which I never actually got into. I've been regretting that decision. It went down right off the starting block and while I wanted a piece I was trying to time the thing. Generally, I never try to time the market, I hate market timers but I did in this case and the stock subsequently took off from $18 to over $24. Well it's started coming back down and I decided to get in when it hit $20.95.

I purchased the stock for my taxable account as I view it to be a solid long-term holding. The company is the dominant player in the North American money transfer business and up there in the rest of the world. It has operaitons in 200 countries, with 285,000 locations. This gives it an advantage of scale and barriers to entry. It earns fat operaring margins of 30%, is growing at ~12% and has a reasonable debt load post-spinoff.

Currently it trades for a P/E of ~18. While this doesn't seem cheap, if the company can perform operationally, continue to grow, pay down debt, repurchase stock basically just take care of business, the P/E will expand. There is no reason that this company couldn't fetch a 25-30 P/E given the 'relatively' low cyclicality. That potential pop in the P/E, in addition to earnings growth (assume 10% per year), share repurchases (2% of net outstanding shares per year), could allow the company to quadruple in size over the next 10 years. That would translate into yearly annual gains of ~14.5%. In reality, the results will differ materially from my expectations but potentially in either direction. For a taxable account where I don't want to be trading, I view the likelihood of the results and the potential returns excess over fixed income to offer an atttactive entry point.

Beyond that, check out the latest quarterly results here.