Equifax upped to 'strong buy'

This provider of credit solutions offers an attractive investment opportunity.

By Zacks.com Jan 4, 2013 9:45AM
Creditcard Computer Photographers Choice RF Getty ImagesBy Zacks Equity Research

On January 2, 2013, Zacks Investment Research upgraded Equifax (EFX) to a Zacks #1 Rank ("strong buy").

With a solid return of 41.0% over the past year and positive estimate revisions, this provider of credit solutions offers an attractive investment opportunity.

Why the upgrade?
An upbeat third quarter 2012, acquisition of Computer Sciences Corp.'s (CSC) Credit Services business, better visibility in the mortgage market and strong non-mortgage fundamentals have contributed to the upgrade.

Equifax generated strong revenues in its third quarter of 2012 on the back of 35.0% year-over-year growth in Mortgage Solutions revenue. The company expects mortgage activities to maintain momentum in the coming quarters as home sales should continue to trend up. Equifax witnessed market share gains in the mortgage sector, aided by its newly-launched products and services. Hence, it is expected that strength in its mortgage solutions portfolio will be a key catalyst in the near term.

Increased mortgage activity and strong performance of non-mortgage segments led to a 16.0% year-over-year growth in earnings per share to 75 cents.

There appears to be adequate growth potential given Equifax's expanding geographical reach and the recent takeover of Computer Sciences' Credit Services business. As Equifax had been handling CSC's business for many years, it will take lesser time to integrate the business within its USCIS segment. The deal will be accretive to earnings in 2013.

Equifax's leading market position in North America and Europe and growth in Brazil, which is one of the faster-growing markets in the world are positives. To tap the immense opportunity in the Brazilian credit data market, Equifax merged credit reporting operations of its Brazilian subsidiary with Boa Vista Servicos S.A., the second-largest consumer credit bureau in Brazil.

All of the 11 estimates for 2012 were raised over the last 60 days. For 2013, eight out of the 11 estimates moved up.

Despite the positive estimate revisions, the Zacks consensus estimate for 2012 remained unchanged at $2.95 with the Zacks consensus estimate for 2013 moving up 33 cents (10.3%) to $3.54.

Equifax has the potential to post a positive earnings surprise in the upcoming quarter. For the past four quarters, Equifax has posted an average surprise of 4.03%.

Other stocks to consider
The following credit services providers with a favorable Zacks Rank are also performing well and are worth considering.
1.    Fidelity National Information Services (FIS) has a Zacks #2 Rank ("buy").
2.    Alliance Data Systems (ADS) has a Zacks #2 Rank ("buy").



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