After two years of litigation and negotiation with federal regulatory agencies, Equifax (NYSE:EFX) has finally announced a resolution to the massive 2017 data breach. A dominant player in the global credit monitoring market, EFX will set aside some $700 million in a restitution fund to reimburse consumers whose personal data was compromised. This settlement follows similar announcements about massive data governance problems hitting the share prices of Facebook (NASDAQ:FB) and Capital One (NYSE:COF).
Over half of the record $700 million settlement that will be set aside by EFX will be paid to some 150 million consumers whose personal data was exposed — as long as they submit the proper documentation.
EFX CEO Optimistic
“The announcement was a real milestone and pivot for Equifax, which allows us to fully focus on operations driving growth in our EFX 2020 technology and data security transformation”, according to Mark W. Begor, Equifax CEO. “The comprehensive resolution we announced is comprised of multiple related settlement agreements with the consumer class action plaintiffs in the Federal Multi District proceedings, the attorney generals of 48 states, Puerto Rico and the District of Columbia, the Federal Trade Commission, the Consumer Financial Protection Bureau and the New York State Department of Financial Services.”
Closing recently at $141.40 and just off the 52-week high of $144, many analysts think EFX stock is overvalued and should be sold. In fact, most consensus estimates put the one-year estimated share price at the $141 level, making EFX stock perhaps a target for a short sell.
Yet, contrary to the gloom and doom in the media, the financials for Equifax stock are strong.
In the recent earnings call on July 25, EFX reported top-line earnings that declined 10.3% on a year-over-year basis. However, they delivered solid second-quarter 2019 results beating consensus estimates.
Adjusted earnings of $1.40 per share beat the consensus guided range of $1.32 to $1.37 level by 4 cents. EFX revenues of $880 million outpaced the consensus estimate by $8.2 million and improved 0.4% YOY. The reported $880 million came in at the higher end of the guided range of $865 million-$880 million.
By now, all the bad news about EFX stock is already baked into the price.
While the firm remains cautious in its outlook, there are solid indicators that not only is the worst news in the past, but there are clear drivers of growth on the horizon.
For the past three quarters, revenues from EFX’s United States Information Solutions (USIS), their biggest operating unit, has consistently beat estimates. E-commerce generated revenues for USIS are exceptionally strong. This is not surprising given the Digital-First strategy of EFX management.
And Equifax is well ahead of the curve investing across digital transformation initiatives and cloud migration. This infrastructure spend will eventually pay off in terms of aggressively cutting costs, increasing productivity and bolstering cybersecurity. Partnering with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), EFX is completing the process of fully migrating critical data exchanges to Google Cloud Services.
The Future for EFX Stock Looks Solid
Combined with solid growth in the U.S. home mortgage originations — all requiring credit bureau services — as well as ongoing investments into fintech and an improving picture in Europe, Equifax’s margin performance should see gains through the year. More importantly, EFX is investing heavily on productivity enhancement, e-commerce and cost cutting, in a high growth market with high barriers to entry.
By comparison, FB, GOOG and Microsoft (NASDAQ:MSFT) have all, in the past, been hit with similar bad news and financial settlements due to data governance problems … and their stock prices all have bounced back nicely.
Similarly, with a week of bad headlines well behind it, Equifax stock may present an opportunity to buy on the dips.
As of this writing, Theodore Kim did not hold a position in any of the aforementioned securities.