Equifax Earnings: Mortgage Volume Decline Hurts Results, but Equifax Has Some Pockets of Strength

Equifax EFX 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.

Equifax Workforce Solutions, or EWS, Equifax’s largest segment, grew revenue 3% with nonmortgage revenue growing 11%. Equifax finished the quarter with a 12% year-over-year growth in payroll records, a slight deceleration from 14% in the second quarter but still a solid result, in our view. Government revenue growth of 23% was the star, and Equifax continues to win and extend contracts, notably for Medicaid redetermination and the USDA’s SNAP program. Talent solutions revenue growth of 6% was not bad as hiring, particularly for professional workers, continues to be slow. If there was an area of disappointment for us in the nonmortgage verification business, it was consumer lending, which was down 8%. Equifax over-indexes to subprime, which has been hit harder than prime lending. EWS mortgage revenue was down 17%, which was better than the 29% decline in mortgage credit inquiries.