We have upgraded our long-term recommendation on Equifax Inc. (EFX) to Outperform from Neutral based on the company’s upbeat third quarter 2012 results and market share gains in its mortgage solutions portfolio.
Equifax generated strong revenues in its third quarter of 2012 on the back of 35.0% year-over-year growth in Mortgage Solutions revenue. The company also expects mortgage activities to maintain momentum in the coming quarters as home sales should continue to trend up. Equifax noticed market share gains in the mortgage sector, aided by its newly-launched products and services. Hence, it is expected that strength in its mortgage solutions portfolio will be a key catalyst in the near term.
Better mortgage activities and strong performance of non-mortgage revenues led to 16.0% year-over-year growth in earnings per share of 75 cents.
Though the fourth quarter guidance was not very encouraging, we believe that there is adequate growth potential given Equifax’ expanding geographical reach and the recent takeover of Computer Sciences Corp.’s (CSC) Credit Services business. As Equifax had been handling CSC’s business for many years, it will take lesser time to integrate the business within its USCIS segment. The deal will be accretive to earnings per share in 2013.
Headquartered in Atlanta, Georgia, Equifax is one of the leaders in facilitating and securing commerce through proprietary databases containing information on approximately 400 million consumers and businesses worldwide. Equifax helps businesses to identify customers largely based on credit profiles and to reach out to them.
We believe that Equifax’s leading market position in North America and Europe could give the shares a boost going forward. We also think Equifax’ growing exposure in Brazil, which is one of the faster-growing markets in the world, is encouraging. To tap the immense growth opportunity in the Brazilian credit data market, Equifax merged credit reporting operations of its Brazilian subsidiary with Boa Vista Servicos S.A., the second-largest consumer credit bureau in Brazil. But Equifax may face some problem with market share gains of its archrival Experian plc in Brazil.
Overall, we see the company’s service tie-ups with a wide range of industries, lesser customer concentration risks and improving mortgage situation in the U.S. to be positive.
Estimate Revision Trend
Over the last 60 days, all the 11 estimates for fiscal 2012 were raised. Also, 8 out of the 11 estimates were moved upward for fiscal 2013. The magnitude of estimate increased by a penny to $2.95 for fiscal 2012, but was up 34 cents to $3.54 for fiscal 2013 in the last 60 days.
Currently, Equifax has a Zacks #2 Rank (Buy).
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