OneTru Migration And Monevo Acquisition Will Power Digital Transformation

Key Takeaways

• TransUnion's technology modernization and global transformation are expected to boost efficiencies and speed of innovation, potentially improving margins.
  
• Strategic acquisitions and international expansion, particularly in high-growth regions, position TransUnion for sustained future revenue growth.
  
• Rising interest rates, consumer sentiment decline, and fiscal uncertainties threaten TransUnion's revenue, while tech transformation costs may strain margins and delay savings.

Catalysts

Operates as a global consumer credit reporting agency that provides risk and information solutions.

• TransUnion's focus on transforming its global operating model and technology modernization, including migrating customers to the new OneTru platform, is expected to enhance efficiencies and drive faster innovation, potentially improving net margins due to cost savings and increased speed in processing and product development.
  
• Growth in the mortgage segment, driven by revenue outperforming mortgage inquiry volume declines, suggests potential future upside in revenue, especially if refinancing activity picks up with changing interest rate dynamics.
  
• The company's plans to accelerate innovation across its product portfolio and new launches like the freemium offering in Consumer Interactive should spur future revenue growth by attracting new customer segments and leveraging data analytics solutions.
  
• The recent acquisition of Monevo and interest in expanding international operations, such as in India, where lending activities are expected to reaccelerate, positions TransUnion for future revenue growth through market expansion and enhanced service offerings in high-growth regions.
  
• Strengthening financial services growth driven by fintech resurgence and solid performance in the auto and emerging verticals, like insurance, provides a diversified revenue base that can buffer against potential downturns in specific segments, supporting overall earnings stability.

TransUnion Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TransUnion's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.6% today to 15.6% in 3 years time.
• Analysts expect earnings to reach $836.7 million (and earnings per share of $4.36) by about May 2028, up from $367.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $722.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.1x on those 2028 earnings, down from 43.8x today. This future PE is greater than the current PE for the US Professional Services industry at 20.7x.
• Analysts expect the number of shares outstanding to grow by 0.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

TransUnion Future Earnings Per Share Growth

Risks

• The increasing interest rates and elevated 10-year U.S. Treasury rates could suppress lending volumes, which might negatively impact TransUnion's revenue from the U.S. Financial Services segment.
  
• The decline in consumer sentiment observed may lead to lower consumer spending and borrowing, potentially reducing demand for credit reports and insights, adversely affecting TransUnion's core revenue-driving segments.
  
• There is uncertainty surrounding recent U.S. fiscal policy proposals on tariffs and trade, which could impact the broader economic environment and indirectly influence employment rates and inflation, thereby affecting lending volumes and TransUnion's revenue.
  
• TransUnion’s significant ongoing expenses related to technology transformation and operational adjustments could pressure net margins and delay expected cost savings within the projected timeframe.
  
• International markets, especially India, face uncertainty due to regulatory changes and previous lending restrictions, which could affect growth trajectories and impact earnings from those regions.

Valuation

• The analysts have a consensus price target of $104.5 for TransUnion 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 $130.0, and the most bearish reporting a price target of just $84.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.4 billion, earnings will come to $836.7 million, and it would be trading on a PE ratio of 30.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $82.43, the analyst price target of $104.5 is 21.1% 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.