Equifax (EFX): A Modestly Undervalued Gem in the Business Services Industry
Equifax Inc (NYSE:EFX), a leading credit bureau in the United States, recently experienced a daily loss of -4.07% and a 3-month loss of -16.24%. Despite these losses, the company's Earnings Per Share (EPS) stands at 4.25. Is Equifax (NYSE:EFX) modestly undervalued? This article provides an in-depth analysis of Equifax's valuation and prospects.
Company Overview
Equifax Inc (NYSE:EFX) is one of the leading credit bureaus in the United States, alongside Experian and TransUnion. The company's credit reports provide credit histories on millions of consumers, and its services are critical to lenders' credit decisions. Equifax also generates about a third of its revenue from workforce solutions, which provides income verification and employer human resources services. The company generates over 20% of its revenue from outside the United States. With a current stock price of $171.75 per share, Equifax has a market cap of $21.20 billion and is believed to be modestly undervalued based on its GF Value of $225.44.
Understanding the GF Value
The GF Value is a proprietary measure that indicates the current intrinsic value of a stock. It is derived from historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Based on the GF Value, Equifax (NYSE:EFX) is currently modestly undervalued.
Because Equifax is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth. Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. Equifax has a cash-to-debt ratio of 0.03, which ranks worse than 94.08% of 1048 companies in the Business Services industry. Based on this, GuruFocus ranks Equifax's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Equifax has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $5.10 billion and Earnings Per Share (EPS) of $4.25. Its operating margin is 17.01%, which ranks better than 81.16% of 1056 companies in the Business Services industry. Overall, the profitability of Equifax is ranked 8 out of 10, which indicates strong profitability.
Growth is a critical factor in the valuation of a company. Equifax's 3-year average revenue growth rate is better than 73.18% of 973 companies in the Business Services industry. Equifax's 3-year average EBITDA growth rate is 261.4%, which ranks better than 99.65% of 846 companies in the Business Services industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can also evaluate its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Equifax's ROIC is 5.64 while its WACC came in at 12.34.
Conclusion
In conclusion, the stock of Equifax (NYSE:EFX) is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 99.65% of 846 companies in the Business Services industry. To learn more about Equifax stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
