TransUnion (TRU - Free Report) is benefitting from a strong business model, significant operating leverage, low capital requirements as well as strong and stable cash flows.
The Illinois-based risk and information solutions provider delivered impressive second-quarter 2018 results, with earnings and revenues beating the Zacks Consensus Estimate. Adjusted earnings per share (EPS) of 62 cents beat the consensus estimate by 2 cents and surged 31.9% year over year. Total revenues of $563 million surpassed the consensus mark by $24 million and improved 19% on a reported as well as constant-currency basis.
TransUnion’s surprise history looks impressive. It beat estimates in each of the trailing four quarters, the average being 5.4%. In a year's time, shares of the company have gained 57.1% compared with the industry’s rally of 25.7%. For the third quarter, the consensus estimate remained unchanged over the past 30 days.
Acquisitions: A Key Growth Strategy
The company’s successful acquisition strategy focuses on investment in unique and differentiated data assets, acquiring capabilities for expansion in vertical markets as well as international footprints.
So far in 2018, TransUnion has acquired Callcredit, iovation and Healthcare Payment Specialists. These buyouts are expected to assist the company with new market entry and portfolio diversification in the future.
Some notable buyouts of 2017 include DataLink Services, FactorTrust and eBureau. These acquisitions are contributing significantly to the company’s top line growth in all operating segments
Burgeoning Big Data and Analytics Market
TransUnion’s addressable market includes Big Data and analytics market, which is expanding at an accelerating pace as companies envisage the advantages of building an analytical enterprise where decisions are derived from data and insights.
Research firm IDC forecasts that worldwide revenues for big data and business analytics (BDA) solutions will witness a compounded annual growth (CAGR) of 11.9% and reach $260 billion in 2022. To benefit from the immense growth potential in the market, the company has leveraged next-generation technology to strengthen analytics capabilities and expand the database.
Broad Range of Customers
The company serves a broad customer base of more than 35 million. TransUnion deals with eight of the 10 largest U.S. banks, top ten credit card issuers, the biggest 25 auto lenders, 14 of 15 largest auto insurance carriers and thousands of healthcare providers as well as federal, state and local government agencies. It continues to make significant investments to modernize infrastructure and facilitate the seamless transition to the latest Big Data and analytics technologies, thereby expanding business and improving cost structure.
TransUnion’s balance sheet is highly leveraged. As of Jun 30, 2018, long-term debt was $4.1 billion while cash and cash equivalents were $192.3 million. Such a cash position implies that TransUnion needs to generate an adequate amount of operating cash flow to pay its debt. Moreover, high debt may limit future expansion and worsen risk profile.
The company’s operating segments are affected by seasonality. The USIS segment witnesses soft sales in the first and fourth quarter relative to second and third quarters. The Consumer Interactive segment experiences weaker demand in the second half of the year. The International segment revenues fluctuate due to local economic conditions and macroeconomic market trends. Seasonality causes considerable fluctuations in revenues and profits, making forecast difficult.
Zacks Rank & Key Picks
Currently, TransUnion carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Business Services Sector include ICF International, Inc. (ICFI - Free Report) , WEX Inc. (WEX - Free Report) and Total System Services, Inc. (TSS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The long-term expected EPS (three to five years) growth rate for Genpact, WEX and Total System Services is 10%, 15% and 14.6%, respectively.
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