September 13, 2011
Volume XXXVII, Issue VII & VIII
- 25 -
Equifax Inc.
(NYSE: EFX)
Dow Jones Indus: 11,105.85
S&P 500:
1,172.87
Russell 2000:
691.74
Trigger: No
Index Component: S&P 500
Type of Situation: Consumer Franchise, Business Value
Price: $
31.01
Total Shares Outstanding (MM):
122.8
Fully Diluted (MM) (% Increase):
124.6 (1.5%)
Average Daily Volume (MM):
1.1
Market Cap (MM):
$ 3,866
Enterprise Value (MM):
$ 4,739
Percentage Closely Held: Officers / Directors 4.6%
52-Week High/Low:
$ 39.81/28.79
5-Year High/Low:
$ 46.26/19.79
Trailing Twelve Months
Price/Earnings:
17.6x
Price/Stated Book Value:
2.1x
Long-Term Debt (MM):
$ 982
Implied Upside to Estimate of
Intrinsic Value:
41%
Dividend:
$0.64
Payout:
37%
Yield:
2.1%
Revenue Per Share:
TTM*: $
15.37
2010: $
14.70
2009: $
13.42
2008: $
13.91
Earnings Per Share:
TTM: $
1.73
2010: $
1.86
2009: $
1.70
2008: $
1.91
Fiscal Year Ends:
Company Address:
Telephone:
Chairman/CEO:
December 31
1550 Peachtree Street, N.W.
Atlanta, GA
(404) 885-8000
Richard F. Smith
Clients of Boyar Asset Management, Inc. do not own shares of Equifax,
Inc. common stock.
Analysts employed by Boyar’s Intrinsic Value Research LLC do not own
shares of Equifax, Inc. common stock.
Introduction
Equifax (“EFX” or “the Company”) is a leading
provider of information solutions, employment and
income verifications and human resources business
processing outsourcing. During 2010, nearly 90% of the
Company’s revenues were derived from services
provided to businesses including consumer and
business credit intelligence, credit portfolio
management, decisioning technology, marketing tools
and HR related services. Equifax leverages its large
commercial and consumer databases, advanced
analytics and proprietary technology to enable its
customers to make better decisions and therefore help
them grow profitably.
Products marketed to individual consumers
represented 10% of the Company’s 2010 revenues.
The Company’s direct to consumer products allow
individuals to make financial decisions, monitor their
credit and credit score, and protect their identity. These
products are sold on either a transaction or subscription
basis and are delivered to customers electronically via
the Internet.
In our view, the Company operates an
extremely attractive business model characterized by
repeatable revenues streams, high barriers to entry,
minimal capital requirements and high margins thanks
to significant operating leverage. In addition, the
competitive environment is extremely favorable as there
are only two other large scale global competitors in the
consumer credit and information management industry.
Equifax Inc.
- 26 -
Equifax’s results have been negatively impacted by consumer deleveraging and tighter bank lending
standards in response to the 2008/2009 credit crisis. These factors have pressured Equifax’s U.S Consumer
Information Services (USCIS) business segment (40% of 2010 revenue; 63% of operating profit) the largest of
the Company’s five operating segments. Revenues in the segment were 3% lower in 2010 vs. 2008 while
operating margins have contracted by 260 basis points over that same time period. We believe the headwinds
associated with the challenging economic environment will soon pivot to a tailwind given our view of an
upcoming housing recovery (see our Summer 2011 introduction “Stocks set for a lift from a housing recovery”).
A housing recovery bodes particularly well for Equifax given its direct mortgage exposure (15% in 2010) and
implication for job growth, which should translate into increased consumer credit demand. Further, institutions
are demanding more advanced analytics about consumers’ ability to pay in response to the recent downturn,
which should increase demand for the Company’s services.
While a housing recovery will likely provide a nice boost for Equifax, we believe that there are a
multiple number of growth drivers that could favorably impact future results. Among the Company’s promising
growth opportunities include strong new product development (137 new products introduced over the past
2 years), recent investments/acquisitions in unique data assets and the growing demand for credit and risk
information outside of the traditional finance/mortgage industries. Further, the Company has exposure to a
number of high growth emerging markets including Russia, India and South America. The middle class
population is exploding in these regions and the use of financing by consumers in these countries for property
and vehicle purchases is expected to increase significantly.
The significant operating leverage inherent in the Company’s database business model enables
Equifax to generate an enormous amount of free cash flow. While the Company’s capital allocation has
balanced share repurchases ($378 million since 2008), debt reduction ($238 million decrease), and
acquisitions ($337 million since 2008) since the 2008/2009 credit crisis, we believe that a disproportionate
amount of free cash flow going forward will be deployed for share repurchases. It should be noted that the
Company’s leverage (debt/EBITDA) has declined meaningfully over the last 3 years and now stands at 1.6x
down from 2.3x at the end of 2007. Further, we believe share repurchases represent an excellent use of capital
with the shares trading at just 6.6x our 2012E EBITDA.
At current levels, Equifax shares trade 22% below their 52 week high and are little changed over the
past 6 years. In our view, the Company’s current valuation is inconsistent with the Company’s attractive
business model (EBITDA margins ~32%) and strong growth prospects. Reinforcing our view of Equifax’s
outlook and business prospects is the Company’s recent decision to boost its quarterly dividend by a whopping
four fold to $0.16 a share from $0.04 a share (current yield: 2.1%). Applying a 9.0x multiple (on par with the
8.5x-9.0x multiple paid by Madison Dearborn in 2010 to acquire a 51% stake in peer TransUnion from the
Pritzker Family) to our projection of the Company’s 2012E EBITDA, we estimate the Company’s intrinsic value
to be $44 a share, representing 41% upside from current levels.
Business Overview
Equifax manages its operations through five reportable segments. The following provides a summary
of the annual operating results by segment over the past three years.
Operating Revenues Operating
Income
2008 2009 2010
6 Mos.
2010
6 Mos.
2011
2008 2009 2010
6 Mos.
2010
6 Mos.
2011
U.S. Consumer
Information Services
$768.7
$712.2 $743.0 $357.7 $375.0
U.S. Consumer
Information Services
$298.9 $259.4 $269.8
$128.4 $132.5
International $505.7
$438.6
$482.8 $234.4 $258.0 International $149.9
$118.9 $119.4
$58.8
$64.0
TALX $305.1
$346.4
$395.6 $194.3 $195.7 TALX $53.1
$75.4
$92.1
$44.5
$42.5
North Am.
Personal Solutions
$162.6
$149.0 $157.6
$80.0
$89.6 North Am. Personal Solutions
$46.3
$34.3
$44.6
$20.2
$25.2
North Am. Commercial Sol. $71.5 $69.8 $80.5
$37.3
$41.4 North Am. Commercial Sol.
$13.6
$15.1
$19.5
$8.1
$9.5
Total Operating Revenue:$1,813.6 $1,716.0 $1,859.5 $903.7 $959.7 General Corporate Expense ($122.8) ($121.3) ($115.4) ($49.9) ($50.0)
Total Operating Income: $439.0 $381.8 $430.0
$210.1 $223.7