On the surface, it appears that Equifax Inc. (NYSE:EFX) is a perfect short candidate. Immediately after the credit-monitoring agency disclosed a massive data breach, the markets pummeled EFX stock. Between the disclosure and the subsequent bottoming of the share price, EFX lost nearly 35%.
That, of course, is just the investment market penalties. The worst part is that 143 million people had their personal information stolen, which included critical data such as social security numbers and birth dates. To put this figure into perspective, EFX has 16.6 million more victims than there are people with full-time jobs!
If anybody wanted to take out their pitchforks against Equifax executives, no one would stop them. Naturally, many elected to take out their frustrations on Equifax stock, and no one objected to that, either.
Nevertheless, despite the raw emotions — and it will get rawer once cyber-criminals advantage the stolen data — I didn’t take a negative view on EFX stock. In fact, I suggested that this was a contrarian bullish play.
How so? Primarily, the American people have short attention spans, and I was proven right on two counts. First, Equifax stock did move higher from the time my article was published. Second, more people today are concerned about Facebook, Inc. (NASDAQ:FB).
Let’s get this straight: Equifax essentially compromised all working Americans’ highly personal information, yet shares started recovering after a week from the painful disclosure. Facebook violated the confidentiality agreement of a voluntary platform, and some want to crucify CEO Mark Zuckerberg. Makes sense.
But several months after the incident, does EFX stock still have contrarian upside potential remaining? It’s a risky proposition, but shares are more attractive now than they’ve ever been.
Set Aside Your Emotions With EFX Stock
I wholeheartedly admit that investing in Equifax stock sounds repulsive. Again, this is a company that violated every working American, and the consequences are just beginning.
The mistake, though, is approaching EFX through your human lens. Equifax, like a big oil company, is a snake. Thus, you have to approach this organization like a shameless, double-forked serpent. When you do, you’ll see the opportunity more clearly.
First, let’s consider the credit-monitoring industry. If you want to boycott Equifax, what are your choices? You’re going to look at Experian PLC/ADR (OTCMKTS:EXPGY) and TransUnion (NYSE:TRU), and that’s it. I’m being a little bit facetious; other competitors exist. However, the aforementioned “big three” heavily dominate this sector.
Second, competitors aren’t likely to lower their rates for their services. Why should they? They weren’t caught on a data breach’s wrong end, at least not yet. So EFX will have to pull out the discounts and do things like offer free credit-monitoring services.
Call it the Chipotle Mexican Grill, Inc. (NYSE:CMG) strategy. What do you do when customers accuse you of poisoning them (repeatedly)? Offer a few buy-one-get-one-free deals, or BOGOs, and you can claw your way back up. But this strategy will be more effective for Equifax, and EFX stock, because of sharply fewer competitors.
Third, and this sounds like a terrible thing to say, but Equifax stock is more attractive at this valuation. The earnings per share forecast for 2018 isn’t that much different from 2017 actuals: $5.93 for this year versus $5.96 last year.
So, what you end up with is roughly the same company but at a lower price point.
Final Thoughts on Equifax Stock
With all this said, I’m not the biggest fan of EFX stock. Forget the controversy, as awful as it is. This is a company in a boring industry with limited upside.
If you are going to buy Equifax stock, I’d maintain a long-term view. Don’t go into this thinking it’s a cryptocurrency or the next big tech firm. Rather, it’s a morally challenged company that will move higher because it’s too big to fail.
Buy a few shares now but keep the powder keg dry for possible dips. We could hear some news that a cyber-criminal ring used the Equifax stolen data to commit massive fraud. That should send EFX down, giving you another buying opportunity. But above all else, keep this to yourself.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.