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Equifax (EFX) Up 5.7% Since Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Equifax, Inc. (EFX - Free Report) . Shares have added about 5.7% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is EFX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Equifax Earnings and Revenues Beat Estimates in Q4
Equifax reported fourth-quarter 2017 results, wherein revenues and non-GAAP earnings per share came ahead of the respective Zacks Consensus Estimate. This was the second quarterly results post the data breach incident. Notably, in September 2017, Equifax announced that very sensitive personal data of approximately 143 million consumers has been stolen from its database.
During the fourth quarter, the company recorded $26.5 million of costs related to the data breach. Notably, in the third quarter it had incurred $87.5 million owing to the same.
Despite incurring this huge cybersecurity expense, the company managed to record a year-over-year increase of 40.6% in GAAP earnings per share, courtesy of the latest Tax Cuts and Jobs Act benefit which lowered the effective tax rate. The company recorded a one-time tax benefit of $48.3 million due to the recent tax enactment. On a GAAP basis, Equifax reported earnings of $1.42 per share, up from $1.01 posted in the year-ago quarter.
However, on non-GAAP basis (which excludes one-time items including the costs related to data breach and benefit from lower effective tax rate) the company’s non-GAAP earnings came at $1.39 per share, 3 cents lower than the earnings of $1.42 reported in fourth-quarter 2016. Here, it should be noted that the fall would have been much more, but the Securities & Exchange Commission‘s (“SEC”) rule of reporting financial results on non-GAAP basis gave it a scope to somewhat mitigate the debacle. Equifax’s non-GAAP earnings came ahead of the Zacks Consensus Estimate of $1.35.
Let’s discuss quarterly results in detail.
Revenues
Equifax’s revenues of $838.5 million surpassed the Zacks Consensus Estimate of $825 million marking a year-over-year improvement of 4.7%. However, it should be noted that this was the second slowest growth rate in the last several quarters after the 3.8% it registered in third-quarter 2017.
Lackluster top-line performance was mainly due to the dismal performance at its U.S. Information Solutions (USIS) division which suffered a year-over-year 1% decline in revenues to $313 million, highlighting the impact of the data-breach scandal. The division suffered revenue decline of 9% at Mortgage Solutions Services sub-segment, while sales at Online Information Solutions remained flat year over year and at Financial Marketing Services witnessed 1% increase.
Revenues declined at Global Consumer Solutions and in turn dented overall sales growth. Revenues at this division plunged 2% year over year to $97.3 million.
However, the company’s other segments continue to perform well.
Revenues from the International division (including Europe, the Asia Pacific, Canada and Latin America) advanced 15% year over year to $244.8 million. On a constant-currency basis, revenues increased 12%. The company registered growth at every international region with revenues increasing 10%, 16%, 18% and 17% in Asia-Pacific, Latin America, Canada and Europe, respectively.
Revenues from the Workforce Solutions segment climbed 6% year over year to $183.4 million, primarily on the back of 11% sales growth in Verification Services, partially offset by a 5% decline at Employer Services.
Operating Results
Equifax’s adjusted EBITDA remained flat year over year at $292 million. However, adjusted EBITDA margin contracted 170 basis points (bps) to 34.8%. Adjusted net income came in at $168.6 million or $1.39 per share compared with $172.4 million or $1.42 per share reported a year ago.
Balance Sheet & Cash Flow
Equifax exited the reported quarter with $336.4 million in cash and cash equivalents, up from the previous quarter’s balance of $315.4 million. Total long-term debt (excluding current portion) was $1.74 billion, down from $2.04 billion at the end of previous quarter. During the year ended Dec 31, 2017, Equifax generated cash flow of $816 million from operational activities.
In 2017, the company paid dividend of $187.4 million. Also, Equifax’s board of directors yesterday approved a quarterly cash dividend of 39 cents to be payable on Mar 30 to shareholders of record date as of Mar 12. Notably, the company has a history of paying quarterly dividend for more than 100 years.
Outlook
The company anticipates that the data breach incident will continue impacting its overall results throughout 2018 with having a greater impact during the first half. For the year, Equifax projects revenues in a range of $3.425–$3.525 billion (mid-point: $3.475 billion), representing a year-over-year growth in the range of 2% to 5%.
Adjusted EBITDA margin is projected to decline significantly this year. The company expects ongoing costs associated with the free services including the Lock & Alert service as well as expenses related to IT & security will have 30 cents per share negative impact on earnings. Also, higher insurance expenses to cost the company 10 cents per share in 2018.
Adjusted EPS for 2018 is projected to come between $5.80 and $6.00 per share. Effective tax rate for the year to remain around 27% as against 31.8% in 2017.
For the first quarter of 2018, Equifax anticipates revenues to come between $850 million and $860 million, representing year-over-year growth of 2% to 3%. Expenses related to IT& security as well as legal and professional fees to be approximately $70 million. Adjusted EPS for 2018 is projected to come between $1.34 and $1.39 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to four lower.
At this time, EFX has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
Estimates have been trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, EFX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Equifax (EFX) Up 5.7% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Equifax, Inc. (EFX - Free Report) . Shares have added about 5.7% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is EFX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Equifax Earnings and Revenues Beat Estimates in Q4
Equifax reported fourth-quarter 2017 results, wherein revenues and non-GAAP earnings per share came ahead of the respective Zacks Consensus Estimate. This was the second quarterly results post the data breach incident. Notably, in September 2017, Equifax announced that very sensitive personal data of approximately 143 million consumers has been stolen from its database.
During the fourth quarter, the company recorded $26.5 million of costs related to the data breach. Notably, in the third quarter it had incurred $87.5 million owing to the same.
Despite incurring this huge cybersecurity expense, the company managed to record a year-over-year increase of 40.6% in GAAP earnings per share, courtesy of the latest Tax Cuts and Jobs Act benefit which lowered the effective tax rate. The company recorded a one-time tax benefit of $48.3 million due to the recent tax enactment. On a GAAP basis, Equifax reported earnings of $1.42 per share, up from $1.01 posted in the year-ago quarter.
However, on non-GAAP basis (which excludes one-time items including the costs related to data breach and benefit from lower effective tax rate) the company’s non-GAAP earnings came at $1.39 per share, 3 cents lower than the earnings of $1.42 reported in fourth-quarter 2016. Here, it should be noted that the fall would have been much more, but the Securities & Exchange Commission‘s (“SEC”) rule of reporting financial results on non-GAAP basis gave it a scope to somewhat mitigate the debacle. Equifax’s non-GAAP earnings came ahead of the Zacks Consensus Estimate of $1.35.
Let’s discuss quarterly results in detail.
Revenues
Equifax’s revenues of $838.5 million surpassed the Zacks Consensus Estimate of $825 million marking a year-over-year improvement of 4.7%. However, it should be noted that this was the second slowest growth rate in the last several quarters after the 3.8% it registered in third-quarter 2017.
Lackluster top-line performance was mainly due to the dismal performance at its U.S. Information Solutions (USIS) division which suffered a year-over-year 1% decline in revenues to $313 million, highlighting the impact of the data-breach scandal. The division suffered revenue decline of 9% at Mortgage Solutions Services sub-segment, while sales at Online Information Solutions remained flat year over year and at Financial Marketing Services witnessed 1% increase.
Revenues declined at Global Consumer Solutions and in turn dented overall sales growth. Revenues at this division plunged 2% year over year to $97.3 million.
However, the company’s other segments continue to perform well.
Revenues from the International division (including Europe, the Asia Pacific, Canada and Latin America) advanced 15% year over year to $244.8 million. On a constant-currency basis, revenues increased 12%. The company registered growth at every international region with revenues increasing 10%, 16%, 18% and 17% in Asia-Pacific, Latin America, Canada and Europe, respectively.
Revenues from the Workforce Solutions segment climbed 6% year over year to $183.4 million, primarily on the back of 11% sales growth in Verification Services, partially offset by a 5% decline at Employer Services.
Operating Results
Equifax’s adjusted EBITDA remained flat year over year at $292 million. However, adjusted EBITDA margin contracted 170 basis points (bps) to 34.8%. Adjusted net income came in at $168.6 million or $1.39 per share compared with $172.4 million or $1.42 per share reported a year ago.
Balance Sheet & Cash Flow
Equifax exited the reported quarter with $336.4 million in cash and cash equivalents, up from the previous quarter’s balance of $315.4 million. Total long-term debt (excluding current portion) was $1.74 billion, down from $2.04 billion at the end of previous quarter. During the year ended Dec 31, 2017, Equifax generated cash flow of $816 million from operational activities.
In 2017, the company paid dividend of $187.4 million. Also, Equifax’s board of directors yesterday approved a quarterly cash dividend of 39 cents to be payable on Mar 30 to shareholders of record date as of Mar 12. Notably, the company has a history of paying quarterly dividend for more than 100 years.
Outlook
The company anticipates that the data breach incident will continue impacting its overall results throughout 2018 with having a greater impact during the first half. For the year, Equifax projects revenues in a range of $3.425–$3.525 billion (mid-point: $3.475 billion), representing a year-over-year growth in the range of 2% to 5%.
Adjusted EBITDA margin is projected to decline significantly this year. The company expects ongoing costs associated with the free services including the Lock & Alert service as well as expenses related to IT & security will have 30 cents per share negative impact on earnings. Also, higher insurance expenses to cost the company 10 cents per share in 2018.
Adjusted EPS for 2018 is projected to come between $5.80 and $6.00 per share. Effective tax rate for the year to remain around 27% as against 31.8% in 2017.
For the first quarter of 2018, Equifax anticipates revenues to come between $850 million and $860 million, representing year-over-year growth of 2% to 3%. Expenses related to IT& security as well as legal and professional fees to be approximately $70 million. Adjusted EPS for 2018 is projected to come between $1.34 and $1.39 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to four lower.
Equifax, Inc. Price and Consensus
Equifax, Inc. Price and Consensus | Equifax, Inc. Quote
VGM Scores
At this time, EFX has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
Estimates have been trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, EFX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.