Equifax (EFX) Up 9.4% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Equifax (EFX). Shares have added about 9.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Equifax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Equifax Beats Q1 Earnings Estimates

Equifax reported mixed first-quarter 2019 results, with earnings beating the zacks consensus estimate but revenues missing the same.

Adjusted earnings of $1.20 per share beat the Zacks Consensus Estimate by a penny and declined 16% on a year-over-year basis. Earnings came at the higher end of the guided range of $1.15-$1.20. Costs associated with the cybersecurity incident weighed on the bottom line.

Revenues totaled $846.1 million, which lagged the consensus mark by roughly $2 million and fell 2% year over year on a reported basis but increased 1% on a local currency basis. Revenues came below the midpoint of the guided range of $840-$855 million. Weakness in the USIS, International and Global Consumer Solutions segments resulted in year-over-year downside. This was partially offset by strength in the Workforce Solutions segment.

Segmental Revenues

Revenues in the USIS division came in at $298.3 million, down 3% from the year-ago quarter’s number. Within the division, Online Information Solutions revenues of $217.7 million were down 1% year over year. Mortgage Solutions revenues of $32.2 milliondeclined 23% year over year. Financial Marketing Services revenues came in at $48.4 million, up 6% year over year. The segment contributed 35% to total revenues.

Revenues in the International division totaled $225.1 million, down 8% year over year on a reported basis but up 2% on a local currency basis. Equifax reported year-over-year revenue decline of 11%, 16% and 3% in Asia Pacific, Latin America and Europe, respectively. On a local currency basis, revenues from Asia Pacific declined 3%, while that from Europe and Latin America grew 4% and 5%, respectively. Canada revenues rose 2% year over year on a reported basis and 8% on a local currency basis. The International segment contributed 27% to total revenues.

Revenues in the Workforce Solutions segment totaled at $228.5 million, up 8% from the year-ago quarter’s figure. Within the segment, Verification Services revenues of $148.9 million were up 16% year over year. Employer Services revenues of $79.6 million were down 4% year over year. Workforce Solutions contributed 27% to total revenues.

Revenues in the Global Consumer Solutions segment amounted to $94.2 million, down 9% year over year on a reported basis and 8% on a local currency basis. The segment contributed 11% to total revenues.

Operating Results

Adjusted EBITDA in the first quarter fell 11% year over year to $258.2 million. Adjusted EBITDA margin was 30.5% compared with 33.5% in the year-ago quarter. Adjusted EBITDA margin for USIS was 42.9% compared with 44.1% in the year-ago quarter. Adjusted EBITDA margin for the International segment was 25.3% compared with 29.4% in the prior-year quarter. Workforce Solutions’ adjusted EBITDA margin was 49.4% compared with 48.9% a year ago. Adjusted EBITDA margin for Global Consumer Solutions was 23.9% compared with 33.8% in the year-ago quarter.

Balance Sheet and Cash Flow

Equifax exited first quarter with cash and cash equivalents of $133.2 million, lower than $223.6 million in the prior quarter. Long-term debt at the end of the quarter was $2.7 billion, higher than $2.6 billion in the previous quarter. The company generated $31 million of cash from operating activities and capex was $114.8 million. Also, Equifaxpaid dividend of $47.1 million to shareholders in the quarter.

Guidance

For the second quarter of 2019, Equifax expects revenues in the range of $865-$880 million, reflecting a year-over-year local currency growth of 0.5-2.5%. Adjusted EPS is anticipated to be between $1.32 and $1.37, far below the Zacks Consensus Estimate of $1.50.

For 2019, revenues are expected between $3.425 billion and $3.525 billion, the midpoint ($3.475 billion) of which is below the Zacks Consensus Estimate of $3.490 billion. Adjusted EPS is anticipated to be between $5.60 and $5.80.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.47% due to these changes.

VGM Scores

Currently, Equifax has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Equifax has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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