July 19, 2022
With Its Market Leadership, Equifax Shares Are One of the Best Opportunities
With shares of Equifax down 35% versus a 21% decline in the Morningstar U.S. Market equity index, the mortgage market decline has weighed down the stock. We believe the most important questions are to what extent Equifax can weather the choppy mortgage market and whether Equifax Workforce Solutions—which is about 60% of the firm’s profit and a segment we view as having a wide moat — can continue strong performance in light of the mortgage decline. Mortgages consist of both home purchases and refinances. On the purchase side, we note that home purchase volumes were not historically elevated in 2020 and 2021 despite low interest rates. The refinance mortgage market will decline substantially in 2022 but we believe this is priced into the stock. We expect payroll record growth and pricing to result in Workforce Solutions mortgage revenue growth to continue to outpace the mortgage market. We also believe the non-mortgage market verification business of Workforce Solutions has significant revenue opportunities by increasing penetration with auto lenders and credit cards. Our fair value estimate of $325 implies upside of about 70%. In our model, we forecast Equifax’s adjusted EPS to approach the $10 mark next year (our estimate: $9.80, consensus: $9.18) and for revenue to grow at a 10% CAGR over the next five years. While the mortgage market trends remain choppy and gloomy, we believe investors are not appreciating the revenue growth potential of Workforce Solutions, which includes record growth, pricing, and higher penetration.