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UPDATE 1-Western Union's shares tumble as outlook disappoints

Wednesday, 30 Oct 2013 | 3:52 PM ET

(Adds investor comment)

Oct 30 (Reuters) - Shares of Western Union Co fell as much as 19 percent on Wednesday, after the money transfer company said it did not expect earnings growth in 2014 due to higher compliance costs.

The company reported better-than-expected results on Tuesday but said it faces new money laundering and fraud prevention measures in countries such as Spain and Britain.

Western Union said costs associated with compliance are expected to be about 3.5 percent-4.5 percent of revenue in 2014, disappointing a number of analysts, who cut their price targets on the stock.

"Historically, we would have argued that greater regulation would hurt Western Union's competitors more," SunTrust Robinson Humphrey analysts Andrew Jeffrey said in a note to clients.

"However, its far-flung branch network and 16,000+ global corridors are increasingly a liability, rather than an asset, in our view," Jeffrey said.

Western Union has cut prices and invested heavily in its online and mobile business to compete with MoneyGram International Inc, Xoom Corp and Boom Financial Inc. This has boosted its transaction volumes, which rose 9 percent during the quarter.

"We are encouraged by the underlying metrics of the company," said Fred Fialco, co-manager of the Torray Fund, which owns shares in Western Union.

On compliance costs, Fialco said, "There has also been a lack of details and specification on these requirements - whether they are a one-time requirement or ongoing and that would make a difference to investors."

Sterne Agee & Leach analyst Greg Smith said although the company signaled that its strategy to regain market share was working, given the growth in transactions, the outlook came as a big disappointment.

"Given that we are presented with another year of limited to no growth, we would not chase the stock, even at much lower levels," RBC Capital Market analyst Daniel Perlin wrote in a client note, cutting his target on the stock to $17 from $22.

The analysts said the company's move to scale back its share buyback program to much less than the $400 million this year may also have affected the stock.

Shares of Western Union touched a low of $15.51 on the New York Stock Exchange before recovering to $16.90.

(Reporting by Anil D'Silva, Avik Das and Tanya Agarwal in Bangalore)

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