Equifax Stock Surges 13% In A Week – What Comes Next?
One of the world’s largest consumer credit reporting agencies Equifax’s stock (NYSE: EFX) climbed nearly 13% last week, outperforming the S&P 500 which fell -0.9%. The reason – positive guidance for the fourth quarter. The company continues to benefit from increased mortgage activity during the pandemic, and its stock has grown nearly 34% this year. But the question is – are there more gains in store? Our AI engine certainly thinks so. Overall, there is a good opportunity for near term gains but we’ll suggest caution if you have expectation of large long-term growth because Equifax’s EFX performance in recent years (barring 2020), has not exactly been stellar.
Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period. It suggests nearly 9.2% return for Equifax over the next 3 months, and a slightly higher 11.7% over next 6-month period. Our detailed dashboard highlights the expected return for Equifax given its recent move. You can also use this to understand near-term return probabilities for different levels of movements.
If we look at the underlying growth, it has picked up significantly during this pandemic. Thus, if the momentum sustains, there is more return in store for investors. In fact, Equifax is yet to match the revenue multiple that its competitor TransUnion TRU enjoys. Our dashboard Big Movers: Equifax Moved 13% – What Next? lays out critical financial metrics. However, the key phrase here is – “if the momentum sustains.” It is unclear if the changed market conditions which have boosted Equifax’s growth this year, will persist beyond next year.
Equifax’s stock price increased 34% this year, from $140.12 to $188.14. At the beginning of 2020, Equifax’s trailing 12 month P/S ratio was 4.83. This figure increased 9.9% to 5.31, before ending at 6.0 after last week’s move. While certainly higher, there is slightly more room to grow. Compared to Equifax’s P/S multiple of 6.0, the figure for its direct competitors TransUnion stands slightly higher at 6.79. However, we should keep in mind that this is the highest ever P/S achieved by Equifax in the last 15 years.
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While this year is certainly an excellent one for the company, did Equifax have a good momentum prior to 2020? Equifax’s stock increased 18.8% between 2017 and 2019, which dwarfs how it has fared this year alone. If we look at revenue, we find only a modest increase of 4.3% from $3,362 Mil in 2017 to $3,508 Mil in 2019. Margins have not performed exceptionally, either. Equifax’s net margins stood at 17.8% in 2017, and plummeted to -11.2% in 2019 before rebounding to 11.4% in the last 12 months. This suggests that further gains will be influenced by whether the increased mortgage activity persists.
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