Cloud Capabilities And Mortgage Products Will Unlock Future Opportunities

Key Takeaways

• Transition to cloud capabilities and unique product launches are key to driving innovation, customer demand, and revenue growth.
  
• Expansion into new verticals and government TAM penetration could bolster future revenue streams and positively impact margins.
  
• Economic uncertainty and market declines challenge Equifax's growth, with risks from federal funding changes and reliance on macroeconomic stability.

Catalysts

Operates as a data, analytics, and technology company.

• Equifax's transition to leveraging its new cloud capabilities is expected to drive innovation, new products, and growth, enhancing revenue and potentially improving net margins due to efficiency gains.
  
• The launch of unique, combined solutions, such as Equifax's new mortgage product that integrates employment and income information, is generating strong customer demand, likely contributing to revenue growth.
  
• Planned expansion into new verticals with TWN-powered solutions for Auto and P-Loans indicates potential future revenue streams as these products become integral to credit underwriting.
  
• The focus on penetrating the large government TAM, particularly with social service and tax integrity solutions, could drive significant future growth in EWS revenue, impacting both revenue and potentially margins positively.
  
• The recent approval of a $3 billion share repurchase program and a 28% increase in dividends signals a strong commitment to return cash to shareholders, likely growing EPS and potentially bolstering stock value perception.

Equifax Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Equifax's revenue will grow by 10.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.7% today to 17.2% in 3 years time.
• Analysts expect earnings to reach $1.3 billion (and earnings per share of $10.76) by about April 2028, up from $612.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.9x on those 2028 earnings, down from 50.0x today. This future PE is greater than the current PE for the US Professional Services industry at 19.7x.
• Analysts expect the number of shares outstanding to grow by 0.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.67%, as per the Simply Wall St company report.

Equifax Future Earnings Per Share Growth

Risks

• Economic uncertainty and tariff impacts are leading to a lack of increased guidance, despite strong Q1 performance, which could imply potential risks to maintaining revenue growth targets.
  
• The anticipated continued decline in the U.S. mortgage market due to higher interest rates might affect Equifax's revenue growth, as mortgage inquiries are expected to decline by 12% for the year.
  
• Changes in CMS and USDA federal funding practices that impact government reimbursement for the use of Equifax’s data could pose risks to Workforce Solutions revenue growth.
  
• A downturn in the hiring market is expected, which may negatively impact revenue from talent-related services, influencing Equifax’s ability to maintain earnings growth in 2025.
  
• The reliance on macroeconomic stability for long-term financial targets implies risk, as potential economic slowdowns or stagflation could curtail revenue growth and net margins, particularly if consumer confidence declines further.

Valuation

• The analysts have a consensus price target of $275.953 for Equifax based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $315.11, and the most bearish reporting a price target of just $240.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.7 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 31.9x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $245.08, the analyst price target of $275.95 is 11.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.