Government Verification And Cloud Migration Will Secure Future Advantage

Key Takeaways

• New product solutions, technology investments, and international expansion are driving stronger organic growth, margin improvements, and increased customer retention for Equifax.
  
• Rising demand for eligibility verification and a broadening data moat are reducing business cyclicality and diversifying long-term revenue streams.
  
• Rising litigation, regulatory, and competitive pressures may constrain Equifax's revenue growth, compress profit margins, and increase volatility in key business segments.

Catalysts

Operates as a data, analytics, and technology company.

• Accelerating customer adoption of new multi-data product solutions (e.g., TWN indicator, Single Data Fabric, EFX.AI) and continued high NPI (New Product Introduction) rates are expanding Equifax's value proposition, positioning the company to capture incremental market share and drive sustained organic revenue growth above historical levels.
  
• Structural expansion of government verification requirements (e.g., semiannual redeterminations, added work requirements, improper payment focus) and a rising TAM for eligibility verification services are set to benefit long-term revenue growth and reduce business cyclicality as Equifax's solutions become more critical to federal and state programs.
  
• Rapidly growing Work Number record base and increased penetration with employers and states are broadening Equifax's data moat, supporting future product launches and increasing customer stickiness, which should underpin both topline growth and resilient high margins.
  
• Global cloud migration and investments in proprietary technology platforms are now largely complete, enabling margin expansion through operating leverage, efficiency gains, and scalable innovation, which is expected to increase EBITDA and net margins over time.
  
• International expansion, especially in underpenetrated markets like Latin America and through the integration of new platforms (Ignite, InterConnect, Data Fabric), is diversifying Equifax's revenue streams and providing additional runway for earnings growth and margin improvement.

Equifax Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Equifax's revenue will grow by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.0% today to 16.8% in 3 years time.
• Analysts expect earnings to reach $1.3 billion (and earnings per share of $10.71) by about September 2028, up from $639.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.6x on those 2028 earnings, down from 48.8x today. This future PE is greater than the current PE for the US Professional Services industry at 26.3x.
• Analysts expect the number of shares outstanding to decline by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.28%, as per the Simply Wall St company report.

Equifax Future Earnings Per Share Growth

Risks

• Ongoing litigation costs and elevated small claims volumes are driving up corporate expenses, with Equifax expecting these legal costs to remain high in the near-to-medium term, exerting downward pressure on net margins and potentially limiting earnings growth.
  
• Persistent budget constraints at the U.S. state level, resulting from changes in federal reimbursement policy, have increased revenue volatility in the government segment; this makes Equifax's medium-term government revenue growth less predictable, with delayed contracts and program adoption potentially suppressing revenue relative to long-term targets.
  
• The evolving competitive landscape-including increased adoption of alternative credit scoring models, the rising prominence of fintechs, and possible price competition linked to VantageScore-could erode Equifax's market share and pricing power, especially in traditional mortgage and lending segments, potentially reducing future revenue growth and net margins.
  
• Heightened macroeconomic uncertainty (e.g., inflation, tariffs, weak hiring/white-collar employment, and volatile mortgage markets) creates risk of weaker-than-expected demand in major revenue drivers like hiring, lending, and auto/credit card origination-leading to softer-than-anticipated revenue and earnings over the long term.
  
• Growing regulatory focus on data privacy, combined with increased consumer litigation and reputational risk from historical data breaches, may further increase compliance costs, compress margins, and limit Equifax's ability to fully monetize its data assets, threatening long-term revenue expansion and profitability.

Valuation

• The analysts have a consensus price target of $280.5 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 $300.0, 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 $7.8 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 32.6x, assuming you use a discount rate of 7.3%.
• Given the current share price of $252.01, the analyst price target of $280.5 is 10.2% 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.