Company Reports

Wide-moat-rated Equifax reported a messy a start to 2024. It maintained its 2024 outlook despite mortgage inquiries coming in stronger than its conservative expectations, a fact that disappointed investors. On the positive side, US credit bureau mortgage revenue impressed (amid pricing increases from Fair Isaac) and nonmortgage workforce solutions verification revenue was solid. On the negative side, nonmortgage credit bureau, workforce solutions mortgage, employer services, and Australia revenue saw softness.

Along with TransUnion and Experian, Equifax is one of the big three US credit bureaus. Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. As the US credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint organically and through acquisitions. As an example of its bolt-on acquisition strategy, Equifax purchased e-commerce fraud prevention platform Kount for $640 million in 2021. Outside the US, Equifax has international operations in both developed and developing countries. The acquisition of Boa Vista in 2023 gave Equifax entry into Brazil.

Today, wide-moat-rated Equifax reported first-quarter results that showed some softness. Revenue of $1.39 billion missed the FactSet consensus estimate by $10 million (1%). While the result was in line with the firm’s outlook of $1.375 billion-$1.395 billion, Equifax’s outlook had assumed mortgage credit inquiries would decline by 26% (actual result: a decline of 19%). In a negative sign, Equifax maintained its full-year 2024 outlook while increasing its expectation of mortgage credit inquiries to a decline of 11% versus a previous decline of more than 16%. While we will get more details on tomorrow’s earning call, we expect to lower our fair value estimate on Equifax’s shares between 5% and 15%.

All three credit bureaus—Equifax, Experian, TransUnion—and Fair Isaac have exposure to mortgage volumes, and in recent years, these volumes have proved difficult to forecast. Equifax's 2023 mortgage inquiries were 60% below 2020 levels and 41% below 2019 levels. But it is not just mortgage volumes that are affecting these firms. Regulatory changes at government agencies and outsize pricing increases can be important profit drivers. We see the transition to an optional bi-merge—a credit report with data from just two bureaus rather than all three—for government-conforming mortgages posing the most risk to Fair Isaac, as it does not have the upside that the credit bureaus get from the inclusion of VantageScore, a credit score developed jointly by the three major bureaus. But Fair Isaac also has the greatest upside to differing mortgage scenarios, as it has the highest incremental margins and the most pricing upside.

Along with TransUnion and Experian, Equifax is one of the big three US credit bureaus. Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. As the U.S. credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint, both organically and through acquisitions. As an example of its bolt-on acquisition strategy, Equifax announced in January 2021 that it will acquire e-commerce fraud prevention platform Kount for $640 million. Outside the US, Equifax has international operations in both developed and developing countries. Equifax's acquisition of Boa Vista in 2023 gave it entry into Brazil.

Equifax reported a decent finish to 2023. Fourth-quarter revenue of $1.33 billion, adjusted EBITDA of $447 million, and adjusted EPS of $1.81 finished a bit above the FactSet consensus estimates of $1.31 billion, $445 million, and $1.74, respectively. Equifax’s 2024 outlook of $5.67 billion-$5.77 billion in revenue and $7.20-$7.50 adjusted EPS compares unfavorably with the respective consensus estimates of $5.75 billion and $8.13. However, we note that the firm’s outlook assumes a 16% decline in mortgage credit inquiries while the Mortgage Bankers Association, or MBA, expects a 17% increase in mortgage loan originations. Equifax does not assume mortgage rates will decline in 2024, while the MBA expects a decline of over 1 percentage point. In addition, we believe the firm’s mortgage business has high incremental margins, meaning that changes in mortgage volumes disproportionally impact profits. Overall, we will maintain our wide moat rating and $270 fair value estimate on Equifax’s shares.

Equifax saw a third quarter somewhat softer than expected as mortgage volumes continue a downward trend. Revenue was $1.32 billion or $1.30 billion excluding its acquisition of Boa Vista, which was just shy of the $1.33 billion FactSet consensus and the firm’s midpoint guidance of $1.33 billion. We attribute the softness to lower mortgage volumes (mortgage credit inquiries were down 29% in the quarter) and to a lesser extent a stronger dollar weighing on reported results. With mortgage rates continuing to move higher, investors’ patience on mortgage volumes will be tested, but we believe mortgage volumes will rise over the long term and view Equifax’s shares as attractive at current levels. We will maintain our wide moat rating and $270 fair value estimate on Equifax’s shares.

Along with TransUnion and Experian, Equifax is one of the big three credit bureaus. Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. As the U.S. credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint, both organically and through acquisitions. As an example of its bolt-on acquisition strategy, Equifax announced in January 2021 that it will acquire e-commerce fraud prevention platform Kount for $640 million. Kount builds on Equifax’s existing antifraud products and we think acquiring unique data and software assets makes sense.

Along with TransUnion and Experian, Equifax is one of the big three credit bureaus. Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. As the U.S. credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint, both organically and through acquisitions. As an example of its bolt-on acquisition strategy, Equifax announced in January 2021 that it will acquire e-commerce fraud prevention platform Kount for $640 million. Kount builds on Equifax’s existing antifraud products and we think acquiring unique data and software assets makes sense.

Wide-moat-rated Equifax reported a slightly soft second quarter. Revenues of $1.32 billion came in slightly below the FactSet consensus estimate of $1.33 billion and missed our estimates as well. The firm's U.S. credit bureau business performed well, with 6% revenue growth despite a 33% decline in mortgage credit inquiries. However, this strength was overshadowed by the firm's larger Workforce Solutions business hitting speed bumps. Importantly, we do not see much negative read through for peer TransUnion, as we view the negative reaction to Equifax's stock as being concentrated in Workforce Solutions. As we trim our estimates, we expect to reduce our fair value estimate on Equifax in a range of 5%-15%.

Along with TransUnion and Experian, Equifax is one of the big three credit bureaus. Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. As the U.S. credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint, both organically and through acquisitions. As an example of its bolt-on acquisition strategy, Equifax announced in January 2021 that it will acquire e-commerce fraud prevention platform Kount for $640 million. Kount builds on Equifax’s existing antifraud products and we think acquiring unique data and software assets makes sense.

Equifax started the year on solid footing. Revenue of $1.30 billion and adjusted EPS of $1.43 beat the FactSet consensus estimates of $1.28 billion and $1.37 and the company’s guidance of $1.27 billion-$1.29 billion and $1.30-$1.40. In addition, Equifax maintained its full-year revenue and adjusted EPS outlook even as economic uncertainty rises. Following the earnings release, the shares are trading roughly 4 percentage points above the Morningstar US Market Index; we attribute the positive reaction to easing market concerns around recent banking issues affecting the credit bureaus. We note that Equifax has little exposure to regional banks and that larger banks have seen mostly stable deposit bases. Overall, there was little that would change our long-term view of the firm, and we will maintain our wide moat rating and $315 fair value estimate.

Ahead of the firm’s first-quarter earnings release, we are maintaining our fair value estimate of $315 per share on wide-moat-rated Equifax as a slightly lower 2023 revenue estimate is offset by time value of money. We are lowering our revenue estimate for nonmortgage verification services revenue as we trim our expectations for talent solutions. Equifax’s talent solutions business provides businesses with preemployment background screening, particularly for professional workers. We expect volumes to be negatively impacted by companies being cautious about hiring. We are also raising our Morningstar Uncertainty Rating on Equifax to High from Medium in order to account for a wider range of outcomes for its fast growing workforce solutions segment. We continue to view the stock as attractive from a risk/reward perspective as we view Equifax workforce solutions, its largest segment, as differentiated with strong revenue growth drivers including payroll record growth, pricing, and higher penetration.

Along with TransUnion and Experian, Equifax is one of the big three credit bureaus. Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. As the U.S. credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint, both organically and through acquisitions. As an example of its bolt-on acquisition strategy, Equifax announced in January 2021 that it will acquire e-commerce fraud prevention platform Kount for $640 million. Kount builds on Equifax’s existing antifraud products and we think acquiring unique data and software assets makes sense.

Along with TransUnion and Experian, Equifax is one of the big three credit bureaus. Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. As the U.S. credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint, both organically and through acquisitions. As an example of its bolt-on acquisition strategy, Equifax announced in January 2021 that it will acquire e-commerce fraud prevention platform Kount for $640 million. Kount builds on Equifax’s existing antifraud products and we think acquiring unique data and software assets makes sense.

Equifax finished the year with a healthy fourth quarter. Revenue of $1.20 billion and adjusted EPS of $1.52 topped the FactSet consensus by 1% and 2%, respectively. While the firm’s 2023 revenue outlook of $5.28 billion-$5.38 billion beat the consensus estimate of $5.24 billion, the firm’s adjusted EPS outlook of $7.05-$7.35 missed the consensus estimate of $7.53. While shares are trading modestly down on the subdued earnings outlook, we believe that many of the growth drivers, particularly in workforce solutions, are intact, and we will maintain our $315 fair value estimate on wide-moat Equifax’s shares. We’d also remind investors that Equifax’s guidance has tended to err on the conservative side. We expect revenue to grow on average at about 9% over the next five years as we believe the firm’s fastest growing workforce solutions segment will grow faster and longer than the market expects.

Equifax reported a solid third quarter with revenue of $1.24 billion and adjusted EPS of $1.73 edging out the FactSet consensus of $1.22 billion and $1.63, respectively. While a strong quarter, Equifax indicated a softer-than-expected fourth-quarter guidance largely due to predictable headwinds of a slowing mortgage market, foreign currency exchange, and higher interest expense. In addition, the firm provided only minimal color on 2023. We believe this disappointed investors, and we believe the stock trading down provides a buying opportunity for long-term investors. We note that many of the growth drivers are intact, and the nonmortgage business remains healthy. We will maintain our wide moat rating and $315 fair value estimate.

Along with TransUnion and Experian, Equifax is one of the big three credit bureaus. Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. As the U.S. credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint, both organically and through acquisitions. As an example of its bolt-on acquisition strategy, Equifax announced in January 2021 that it will acquire e-commerce fraud prevention platform Kount for $640 million. Kount builds on Equifax’s existing antifraud products and we think acquiring unique data and software assets makes sense.

Along with TransUnion and Experian, Equifax is one of the big three credit bureaus. Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. As the U.S. credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint, both organically and through acquisitions. As an example of its bolt-on acquisition strategy, Equifax announced in January 2021 that it will acquire e-commerce fraud prevention platform Kount for $640 million. Kount builds on Equifax’s existing antifraud products and we think acquiring unique data and software assets makes sense.

Equifax reported a solid second quarter with 4% constant currency revenue growth as strong nonmortgage revenue growth was more than enough to offset the 33% decline in mortgage credit inquiries seen during the quarter. We view Workforce Solutions'; ability to significantly outgrow the mortgage market as well as post 30% organic growth in the nonmortgage business as strong evidence the segment’s intangible assets allow it to garner pricing power and higher penetration in the marketplace. As we tweak our model to reflect higher foreign exchange headwinds and slightly lower mortgage activity than we previously forecast, we are reducing our fair value estimate by 2% to $320 and regard shares of wide moat Equifax as meaningfully undervalued. We expect revenue to grow on average at 10% over the next five years, which is higher than consensus, as we believe the firm's fastest-growing workforce solutions segment will grow faster and longer than the market expects.