Patience. It’s the one thing you need when you own shares in a great business. Case in point: Inside Value recommendation Western Union (NYSE:WU). The company went through a challenging period in 2006 and 2007 as immigration became a national priority, hurting its U.S.-to-Mexico business. This year, however, the 800-pound gorilla in money transfer has gained the respect of the market with its results -- shares were up more than 5% for the year before today’s big move.

3 numbers that spell “Great quarter!”
I’ll let three numbers from the firm’s second quarter results do the talking: revenue grew 12% year-on-year, earnings-per-share (EPS) grew 27% (ex-restructuring costs), while pro-forma operating margins remained stable at 27%. If you’re thinking that those growth rates are due to poor comparables in the prior year, think again: international consumer-to-consumer revenue -- which represents over two-thirds of total revenue -- grew 19%.

The fact that foreign revenue is growing faster than domestic revenue has a number of benefits: for one, the firm’s revenues are increasingly diversified -- that’s no small matter given the economic environment we’re in. Second, foreign revenue is taxed at a lower rate, reducing the firm’s overall tax rate (just 25% in the last quarter, down from 31%).

The sky is bright on the Western horizon
Western Union had already raised long-term growth objectives in June; this time, it raised guidance for full-year EPS. CEO Christina Gold has made good use of her time since the company was spun off from First Data Corporation in September 2006. The company has rationalized its operations and is focused on getting the most value out of its prime assets: its brand and its network of 355,000 locations.

Management has shown a high regard for its shareholders, too: since its flotation, Western Union has repurchased $1.4 billion of its stock; $1.6 billion remains available for future buybacks. Sure, the stock currently trades at a premium multiple compared to its peers (see table below), but that doesn’t mean it’s overvalued -- as far as I’m concerned, the premium is richly deserved.


Next Twelve Months Price/ Earnings Ratio

Long Term EPS Growth Estimate




Fidelity National Information Services (NYSE:FIS)



Global Payments (NYSE:GPN)



Moneygram (NYSE:MGI)



Western Union



Source: Capital IQ

As the dominant actor in a $400 billion remittance market growing at 8% per year, Western Union can look forward to a bright future. I don’t know why Warren Buffett chose to sell the shares he received on behalf of Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), but I’m keeping mine.

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Western Union and Berkshire are Motley Fool Inside Value selections. Berkshire is a Motley Fool Stock Advisor pick. The Fool owns shares of Berkshire. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Alex Dumortier, CFA doesn’t usually like to take the other side of Warren Buffett’s trades. He has a beneficial interest in Western Union, but not in any of the other stocks mentioned in this article.