First Data Corp. shares were little changed Thursday despite an upgrading, to “strong buy,” by Morgan Stanley Dean Witter & Co.

Morgan Stanley analyst David M. Togut, who had rated First Data “outperform” prior to the upgrade, based his opinion on the company’s overseas growth potential. “This year, First Data’s payment instruments division, which is comprised largely of Western Union, should generate almost 50% of the company’s total operating income,” he wrote. He said that Western Union’s international arm, Paris-based Western Union Financial Services International, drives about 50% of First Data’s revenue growth.

“Growing at the numbers we do, I can understand how people are getting exited about us,” said William D. Thomas, president of Western Union International.

Mr. Togut sees significant upside potential, despite the fact that First Data already sports a solid multiple, currently trading at 28.4 times earnings. First Data attracts almost exclusively “strong buy” and “buy” ratings.

On Thursday, First Data closed down 0.68% after a bullish morning trading session. The American Banker index ended up 0.46%, the Standard & Poor’s 500 index remained almost flat, falling 0.03%, and the Nasdaq was down 1.29%.

Mr. Togut expects earnings of $2.48 per share for the full year, in line with the First Call/Thomson Financial consensus. First Data should grow earnings 14% annually for the next five years, and produce consistent 10% to 12% revenue growth, combined with operating margin improvement of 25.7% from 23.4% last year, “driven largely by Western Union,” he wrote.

Western Union increased its international business at a 40% rate last year as well as the year before, building on the division’s “unmatched global distribution, brand recognition, and trust” Mr. Togut wrote. “The two principal growth drivers for Western Union International are the rapid expansion of its agent network and gains in the population of underbanked, immigrant workers who send their paychecks home on a weekly and biweekly basis,” Mr. Togut wrote.

Western Union has established relationships with China Post and India Post to channel these flows of funds between foreign workers in Europe and their families in China and India. And Mr. Thomas said in a telephone interview that his sales force in Europe is planning to establish agent relationships with postal services and financial institutions in the European Union.

Mr. Thomas said that the company will build on customer relationships that Western Union established with these workers in their home country.

On Thursday, Western Union announced that it had reached an agreement with several Yugoslavian banks to offer customers in Serbia and Montenegro the opportunity to send money from abroad to their families using Western Union’s services. By the end of 2001, more than 300 agent locations in Serbia and Montenegro will be equipped to receive and pay out money transfers, the company said.

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