TransUnion (TRU - Free Report) has been one of the star performers in the business-information services space this year. Shares of the company have rallied 25.6% on a year-to-date basis, outperforming the 10.9% gain of the industry it belongs to.
Factors Behind the Surge
We are impressed by TransUnion’s gigantic treasure trove of data that is helping it to sustain competitive advantage and protect market share. Currently, the company has more than 50 petabytes of data, growing at an average of over 25% annually since 2010. Acquiring or building such data involves huge costs, thereby making it extremely difficult for a new company to build the contacts and data that TransUnion already has.
Also, the company has an attractive business model, with highly recurring and diversified revenue streams, significant operating leverage, low capital requirements and strong and stable cash flows. In fact, the inherent nature and significance of its solutions in customers’ decision-making endow it with high customer retention and revenue visibility. TransUnion deals with eight of the 10 largest U.S. banks, all of the top five credit card issuers, the biggest 25 auto lenders, fourteen of the fifteen largest auto insurance carriers and thousands of healthcare providers and federal, state and local government agencies.
Further, we remain optimistic about the company’s acquisition of Callcredit Information Group — the second largest and fast-growing consumer credit bureau in the U.K. This buyout should help TransUnion boost its international expansion strategy and contribute significantly to its long-term top- and bottom-line growth.
In the first quarter of 2018, adjusted earnings per share increased 36% on a year-over-year basis. This improvement can be attributed to lower tax rate resulting from Tax Cuts and Jobs Act. While the top line rose 18% on a reported basis, the same was up 17% on a constant-currency basis. The upside was driven by strong double-digit growth in each of the operating segments and positive contribution from acquisitions of DataLink services, FactorTrust and eBureau.
TransUnion Revenue (TTM)
Solid Growth Prospects
The Zacks Consensus Estimate for 2018 earnings is pegged at $2.42, reflecting year-over-year growth of 29.4%. The bottom line is expected to register 12.4% growth in 2019. TransUnion has a long-term expected earnings growth rate of 10%.
This strong earnings growth prospect is justified, given that the company is well positioned to gain from the favorable socio-economic trends in emerging markets. Additionally, increased risk of identity theft due to data breaches and higher consumer awareness about the importance and usage of their credit information are propelling the demand for TransUnion’s consumer solutions.
A Brokers' Favorite
For the second quarter of 2018, seven estimates moved north over the past 60 days versus no southward revisions. Over the same period, the Zacks Consensus Estimate for the second quarter increased 5.3% to 60 cents.
For 2018, nine estimates moved north over the past 60 days versus no southward revisions. Over the same period, the Zacks Consensus Estimate for 2018 increased 5.2% to $2.42.
Given the wealth of information at the disposal of brokers, it is in the best interests of investors to be guided by broker advice and the direction of their estimate revisions. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Taking into account the above-mentioned tailwinds and the favorable readings, we believe that the current price represents an attractive entry point for investors. TransUnion’s Zacks Rank #2 (Buy) also supports our view, indicating that the stock is likely to outperform the broader market over the next one to three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Stocks to Consider
Some other top-ranked stocks in the broader Business Services sector are Insperity, Inc. (NSP - Free Report) , Robert Half International Inc. (RHI - Free Report) and Korn/Ferry International (KFY - Free Report) . While Insperity sports a Zacks Rank #1, Robert Half and Korn/Ferry carry a Zacks Rank #2.
In the trailing four quarters, Insperity, Robert Half and Korn/Ferry delivered a positive earnings surprise of 2.4%, 8.1% and 20%, respectively.
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