New Products TruIQ And TruValidate, And OneTru Migration Will Strengthen Future Performance

Key Takeaways

• Strategic relocations and technology modernization expected to boost productivity, reduce costs, and expand margins.
  
• Product innovation and growth investments anticipated to drive revenue and market share through new business and acquisitions.
  
• Challenges such as muted U.S. credit volumes, regulatory uncertainty, and increased tax liabilities could constrain TransUnion's revenue growth and profit margins.

Catalysts

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

• TransUnion's strategic relocation of over 1,000 roles to global capability centers is expected to enhance workforce productivity and reduce costs, positively impacting net margins through improved operational efficiencies.
  
• The company's accelerated pace of product innovation, including new product launches like TruIQ Data Enrichment and TruValidate Fraud Mitigation, is anticipated to drive revenue growth by capturing new business and expanding market share.
  
• TransUnion's technology modernization initiatives, particularly the migration to the OneTru platform, are expected to deliver structural cost savings and support significant margin expansion as efficiencies are realized over time.
  
• The anticipated recovery in U.S. credit markets, with potential volume increases in mortgage refinances and auto loans, represents a significant upside to revenue growth due to high incremental margins associated with credit volumes.
  
• TransUnion's recent focus on growth investments, including the expansion of direct-to-consumer offerings and the strategic acquisition of Monevo, is designed to return the Consumer Interactive segment to sustainable revenue growth, ultimately enhancing overall earnings.

TransUnion Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TransUnion's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 14.8% in 3 years time.
• Analysts expect earnings to reach $769.7 million (and earnings per share of $3.98) by about April 2028, up from $284.4 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $847 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.8x on those 2028 earnings, down from 51.8x 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 0.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

TransUnion Future Earnings Per Share Growth

Risks

• The outlook for U.S. credit volumes is muted, with no anticipated improvement from further interest rate reductions in 2025, which could limit revenue and margin growth potential.
  
• The global minimum tax rate and other changes to international tax laws are expected to raise the company's effective tax rate, potentially impacting net earnings and profit margins.
  
• There is a risk of a continued decline in Consumer Interactive revenues due to the ongoing impacts of prior breach wins, which could negatively affect revenue growth and margins.
  
• Increased investment in technology modernization and transformation initiatives, while strategic, could temporarily constrain net margins and profitability in the near term.
  
• The uncertainty around regulatory changes in key markets like India could slow credit growth more than anticipated, negatively affecting revenue from those regions.

Valuation

• The analysts have a consensus price target of $104.667 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 $5.2 billion, earnings will come to $769.7 million, and it would be trading on a PE ratio of 32.8x, assuming you use a discount rate of 7.0%.
• Given the current share price of $75.56, the analyst price target of $104.67 is 27.8% 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.