On Tuesday, UBS initiated coverage on Equifax (NYSE:EFX) stock with a Buy rating and set a price target of $360.00. The firm's outlook is based on the credit reporting agency's potential to generate over $1 billion in revenue between 2024 and 2026, along with an estimated $700 million in EBITDA and approximately $4 in earnings per share as the mortgage sector stabilizes.
The optimism from UBS stems from Equifax's significant mortgage exposure and the expectation of a higher capital return that is currently not reflected in the stock's price. The firm highlighted that the market's implied FY26 adjusted EBITDA for Equifax stands at $2.48 billion, which is lower than UBS's projection of $2.65 billion. This suggests room for growth as the market has not yet priced in the full potential.
According to UBS, Equifax could see a 40%+ EBITDA margin, aided by a roughly 300 basis point adjusted EBITDA margin benefit from mortgage normalization expected in 2025. This improvement is anticipated to coincide with the completion of Equifax's transition to cloud computing, as well as a 12% increase in active records within its Employment and Wealth Solutions (EWS) segment, which now total 180 million.
Furthermore, Equifax is looking to recommence its share buyback program, which has been on hold since 2017, with a $520 million repurchase plan. This buyback represents approximately 1.3% of the company's market capitalization. UBS also notes that Equifax's free cash flow is likely to outpace net income as capital expenditures drop to 6-7% of revenue from the previous low double-digit percentages, providing additional financial flexibility for the company.
In other recent news, Equifax has been making significant strides both in financial performance and strategic partnerships. The company's Q2 results showed a year-over-year revenue increase of 9%, reaching $1.43 billion, and an adjusted EPS of $1.82, surpassing market expectations. Equifax's cloud transformation, a significant undertaking, is nearing completion, with the migration of US Information Solutions (USIS) services and customers to the cloud expected soon.
Investment firm Needham has reaffirmed its confidence in Equifax, increasing its price target for the company to $350 and maintaining its Buy rating. Needham attributes this positive outlook to factors such as Equifax's higher quality of earnings, disciplined approach to capital allocation and mergers, and a stronger balance sheet. Equifax's significant mortgage exposure and the potential for favorable interest rate environments are also seen as potential boosts to the company's operations.
In addition to its financial performance, Equifax has entered into a strategic partnership with enterprise platform provider Workday (NASDAQ:WDAY), Inc. The collaboration aims to expedite employment and income verifications for Workday customers, integrating Workday Payroll with Equifax's The Work Number service. This integration is expected to streamline the verification process, improving the employee experience and freeing up HR departments.
These recent developments reflect a continued positive outlook for Equifax from both financial and strategic standpoints. As the company moves forward, it continues to focus on growth, innovation, and strategic partnerships that leverage its strengths and position it for future success.
InvestingPro Insights
Equifax's financial metrics and market performance align with UBS's optimistic outlook. According to InvestingPro data, Equifax has demonstrated strong revenue growth, with a 7.98% increase in the last twelve months as of Q2 2024. This growth trajectory supports UBS's projection of over $1 billion in revenue generation between 2024 and 2026.
The company's impressive gross profit margin of 55.63% in the last twelve months ending Q2 2024 underscores its operational efficiency, which could contribute to the 40%+ EBITDA margin that UBS anticipates. This is further supported by an InvestingPro Tip highlighting Equifax's "impressive gross profit margins."
Additionally, Equifax's stock has shown remarkable performance, with a 61.43% total return over the past year. This aligns with UBS's view that the market has not fully priced in the company's potential, suggesting room for further growth towards the $360 price target.
For investors seeking more comprehensive analysis, InvestingPro offers 16 additional tips for Equifax, providing deeper insights into the company's financial health and market position.
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