EQUIFAX: good results despite recent turbulance

Equifax, one of the two leading US credit bureau agencies, reported good results on Thursday despite all the recent negative media attention, which started last September after they announced a major breach of security where hackers were able to access private information of some 145.5 million Americans.

2017 Results Were Decent

Even with the recent turbulence, Equifax still managed to realize decent revenue growth (+7% from 2016) and generate sizable free cash flow ($0.6B) in the year. Inclusive in 2017 free cash flow is $164M of pre-tax losses posted in the second half, directly related to the security breach. Despite these charges, Equifax still managed to maintain a very profitable 18% FCF margin, slightly lower than previous years, but still healthy.

Per the above graph, the company is growing revenue at about 10% per year and enjoys a gross profit margin in the mid-60%, leaving plenty of cash flow available to grow, pay dividends and repurchase shares.

What’s Next For the Breach?

According to Reuters, on Equifax’s Q4 conference call, the company announced that they expect an additional $275M of costs associated with the breach in 2018 and that the total cost of the breach could eventually swoon to well over $600M, making it one of the most costly hack’s in corporate history.

But Will Equifax Survive?

We at LongTrend see this recent set back as a good buying opportunity for Equifax. With the stock trading ~20% off recent highs, Equifax is currently much more attractive relative to recent months. Also, Equifax is a company with an extremely long track record – they have been paying a consecutive dividend to shareholders now for over 100 years. Over the last 5 years, they have been growing that dividend at about 17% per year. If Equifax can successfully navigate near-term headwinds, this stock is likely to  eventually challenge old highs.