WU Western Union Company

In an attempt sustain its money transfer service growth, yesterday MoneyGram International Inc. (MGI) announced the extension of alliance with its largest agent – Walmart Stores Inc. (WMT) – for another three years.The new contract will become effective April 2013 onwards.

Accordingly, MoneyGram will continue to offer its prepaid cards and other financial products along with services including money transfer, bill payments and money orders in all the Walmart stores of the US and Puerto Rico. The company’s alliance with Walmart marks a 13-year relationship; the companies have been working together since 1999.

The previous agreement with Walmart was last extended in 2008 in conjunction with MoneyGram's 2008 recapitalization. However, the previous agreement was scheduled to expire in January 2013.

We believe that a failure to extend this relationship could have significantly challenged the company financially, given its relatively high leverage ratio. Moreover, thus far, Walmart is MoneyGram's largest agent and accounts for approximately 30% of its total revenue, thereby validating the significance of maintaining this account.

Further, MoneyGram continues to bolster its position as one of the leading money transfer companies in the world by constantly expanding its payment network via alliances. Overall, the company has a global network of more than 284,000 agent locations in about 196 countries, which primarily include retailers, international post offices and financial institutions.

Meanwhile, the company is also enhancing its brand awareness by developing user-friendly payment solutions that suit the new market trends. With regard to this growth strategy, the company is making efforts to expand its cash-to-account service to other banks as well as add new online services.

Additionally, MoneyGram continues to explore new growth avenues in untested locations by incorporating latest and flexible technology that facilitates transfers through mobile phones, prepaid cards or ATMs, in order to speed up its money transfer services and enhance the remittance volumes. This growth strategy also justifies management’s guidance of 7–9% top-line growth for 2012.

The aggressive business developments are also crucial for MoneyGram to maintain its competitive edge, particularly against the steady global growth of its arch-rival Western Union Co. (WU). The company carries a Zacks Rank #4, which translates into a short-term Sell rating, while the long-term stance remains Neutral.

 
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WESTERN UNION (WU): Free Stock Analysis Report
 
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