Is there profit in money transfer and processing?

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Even in a down economy companies outsource payrolls and migrant workers send money home. But caution is necessary today when it comes to investing in companies that specialize in money transfer and money processing, warns Kartik Mehta, who is a research analyst at Northcoast Research.

Mehta likes Paychex (NASDAQ: PAYX; Price: $28.01) because of its business model and opportunity for growth, although he has concerns about this buy because of the current rise in unemployment. He’s also keen on Western Union (NYSE: WU; Price: $17.27), which he says benefits from worldwide immigration, but he cautions that current global unemployment rates mean that fewer people are transferring money. Global Payments (NYSE: GPN; Price: $37.52) is another company that Mehta sees as a long-term buy. It benefits from the continued shift as consumers move from paying by cash or check to paying by credit or debit card, but he notes that the global economy can take a bite out of this company’s profits.

Franco Turrinelli of William Blair & Co. believes that Western Union, because of its size, will take the lion’s share of the global money-transfer market. He also likes its strong cash flow but acknowledges its short-term, down-economy woes. Given the fact that the outsourcing-payroll market has few competitors, he likes Paychex, although he has concerns about the potential negative effect on the company from an increase in bankruptcies and a decrease in new business formations. Global Payments, Turrinelli believes, has strong international growth potential but has been overvalued by Wall Street. (Editor’s note: William Blair has financial interests in the aforementioned companies.)

S. Berg