Euronet Vs. Western Union: A Pair Trade From Goldman Sachs

Goldman Sachs is recommending cashing in on ATMs and cashing out of money transfer with a pair trade. 

Goldman Sachs analyst Lara Fourman initiated coverage of Euronet Worldwide, Inc. EEFT with a Buy rating, while the analyst assumed coverage of The Western Union Company WU with a Sell.

Fourman has a 12-month price target of $110 for Euronet, suggesting 20-percent upside from current levels, while she has a $17 price target for Western Union, a 12-percent downside from current levels.

Street Underestimating Euronet's Revenue Growth?

The Street is underestimating Euronet's revenue growth in 2018, Fourman said. The analyst's estimates are about 2.4 percent and 2.9 percent, respectively, above the Street for 2018 and 2019.

The Street is not fully appreciating the resilience of Euronet's ATM growth strategy and the turnaround of its prepaid card business, according to Goldman, and the firm expects shares to move higher on upward revisions to estimates over the next year.

See also: Alibaba's Ma Really Wants To Buy MoneyGram But Will It Be Approved?

"The recent pullback in shares over the last two months (EEFT -5 percent vs. S&P +4 percent) also makes for an attractive entry point," Fourman said. 

Industry Consolidation, Competition Pose Risk To Western Union

Industry consolidation and competitive pricing pressure pose risk to earnings per share, and in turn the share price of Western Union, Fourman said. That said, the analyst said the company's execution is improving due to cost savings initiatives and competitive digital offering.

If Moneygram International Inc MGI is acquired by Alibaba Group Holding Ltd BABA's Ant Financial unit, Goldman projects over 20 percent of Western Union's earnings per share to be at risk from lower remittance pricing.

"We do not think this greater pricing pressure is appropriately captured in Western Union's multiple," Fourman said. 

The Price Action

Euronet shares are up about 27 percent year-to-date, while Western Union shares have made a 10-percent retreat. 

Related Link:

Moneygram Stolen From Alibaba? Euronet Makes Higher Offer