10 Things to Know Before Investing in Equifax
By this time just about everyone has seen the news on the Equifax data breach. On September 6th the day before Equifax announced the security breach the company's stock closed at $141.39. One week later the stock closed at $98.99, thats a 43% drop in price. Many investors, new to experienced have been eyeing Equifax for a possible long. Warren Buffett once said, buy when others are fearful, and many are fearful of Equifax at this time. But before you finalize your investment decision here are 10 thing to know about Equifax.
1. Of the top 3 credit rating agencies, Experian, Equifax, and TransUnion, Equifax is #2 in revenue. It's always great as an investor when we can find value in the number two company of a big industry.
Data by Yahoo.com
2. There are four segments of business that Equifax operates in.
U.S. Information Solutions (39% of revenue)
International (26% of revenue)
Workforce Solutions (22% of Revenue)
Global Consumer Solutions (13% of revenue)
3. Equifax generates the majority of it is revenue from commercial and government customers. Why is this important? It's believed by some that the security breach won't effect ongoing business from the firms commercial and government customers, this should keep revenue from decreasing significantly over the next year or two, hopefully.
4. Equifax has increased revenue every year going back to 2010, and before the announcement of the cyber security breach analyst expected revenue to grow by 9%. Yahoo finance now has expected revenue growth for this year at 7%.
5. The security breach was announced by Equifax on 9/7/17. The company reported 143 million U.S. consumers records had been compromised in the breach. Days later Bloomberg reported a cyber security breach of the Equifax systems occurred back in March, five months earlier than the company had announced. Equifax responded that the two are unrelated. In the midst of this the public discovered that three Equifax insiders sold their stock prior to the announcement of the security breach. When an investor decides to invest in a company, they are also investing in the management team. The managements ability to keep the company growing, and out of trouble. And if the company does get into some sort of trouble, investors are looking at management to be ethical, responsible, and offer explanations and solutions. In the case of Equifax, the company's management has handled this situation terribly. Hopefully they’ll get it together for the sake of their consumers.
6. The website Data Center Knowledge did a study to determine what a data breach cost the companies who were effected. They discovered a data breach in the U.S. cost a company on average $7.35 million and the average cost per record compromised is $225. Doing the math, 143 million consumer records at $225 per record equals $32,175,000,000. Equifax will end up paying out a lot of money when this is all said and done, but many analyst doubt it will be in the billions. For more information on Data Center Knowledge's research you can find it here.
7. To try and get a better idea as to what this may cost Equifax, lets take a look at Target. Target had a security breach in 2013. Target reported 40 million credit and debit cards had been compromised between black Friday and December 15th of that year. Almost a month later Target reported that 70 million mailing addresses, phone numbers and email address had been compromised. In Targets 2016 annual report, the company states the security breach cost the firm $292 million. Home Depot reported a breach in 2014. In Home Depot’s case 53 million credit cards were stolen. The security breach has cost Home Depot $198 million dollars.
8. Target and Home Depot are good comparison’s because they are well know publicly traded companies. In Target’s case, their stock traded to a daily high of $63.59 on 12/18/17, one day before the company announced their security breach. The stock fell to $54.66 over the next two months, a 16% decline. The stock then rallied from the $54.66 support and traded to $79 in 2015. Home Depot’s stock didn’t drop at all. The stock was $91.64 the day before the company announced the breach, and the stock didn’t take a dive or make a steady decline like Target's stock, instead Home Depot's stock kept increasing in price.
9. There have been dozens of class action suits filed against Equifax, we’ve seen figures as high as $70B, that would be the largest class action suit in U.S. History. Keep in mind that Equifax has $400M in cash and $2.8B in debt according to their last quarterly report. The company is not in the best position to survive billions of dollars of fines and settlements.
10. After the cyber attack, Well’s Fargo upgraded Equifax to a buy rating. Wells Fargo has a price target on Equifax of $127-$135. Wells Fargo's analyst believes that the Equifax core business to business operations probably won't be impacted by the recent data breach. Wells Fargo believes a best case scenario for Equifax is a $500M fine, a loss of 50% of its consumer business, and a $25M rise in operating cost.
There you have it. More information about Equifax to help you make an investment decision.
After doing our own research the team at The Seville Report does believe there is value in Equifax, however we find it difficult to say this is the time to buy Equifax. We feel there is more news to come, so we are going to sit and wait.