Equifax Stock: Buy or Sell?

Investing in the stock of a credit reporting agency might not be your first thought for where to put your money. When that credit reporting agency is Equifax, however, the question becomes especially interesting.

Equifax [NYSE: EFX] stock is noteworthy because the company’s recent image has been heavily tainted by a 2017 cyberattack that was one of the biggest data breaches in history. The attack exposed information such as the names, Social Security numbers, addresses, and birthdates of 143 million people.

After disclosing news of the breach, Equifax [NYSE: EFX] stock dropped by 31% in the immediate aftermath, wiping out $5.3 billion in market capitalization. Since then, the company has attempted to recover, with varying results. While it may not be a feel-good stock to own right now, is Equifax stock a buy or a sell?

What Does Equifax Do?

Along with Experian and TransUnion, Equifax is one of the three major credit reporting bureaus in the United States.

The company currently employs more than 9,000 workers in 14 different countries. In addition to providing credit reports, Equifax sells credit monitoring and fraud prevention services to businesses and consumers.

When a consumer applies for a loan, mortgage or credit card, Equifax [NYSE: EFX] provides information to the lending institution about the consumer’s credit history, summed up in a single credit score. The institution uses this data to decide whether to provide the loan, and if so what the interest rate will be.

What Are the Risks of Buying Equifax Stock?

Perhaps the biggest concern on investors’ minds right now is whether the effects of the 2017 Equifax data breach will continue to linger.

Some investors worry that the company will suffer another devastating data breach, causing shares to plunge.

According to Wired magazine, Equifax has “no excuse” for the exposure of consumers’ sensitive personal information. Hackers were able to infiltrate the Equifax network through an unpatched security vulnerability in its web application software, even though the vulnerability already had a fix available for two months.

In addition, the company failed to notify affected consumers for six weeks after it discovered the breach.

Equifax leadership has since given their “sincere and total apology” for the breach, increased its investment in cybersecurity, and offered free credit freeze and credit monitoring services to those affected.

The company has continued to work on addressing the issue, spending more than $220 million in breach-related expenses in 2018. However, doubts still remain about the company’s ability to fend off another attack.

In addition, the company’s latest results have been disappointing. In October 2018, shares of Equifax dropped like a rock after a mediocre Q3 earnings report, falling by 22% to the lowest point since the breach.

Next, in their recent Q4 2018 earnings report, Equifax downscaled its revenue estimates for both Q1 2019 and the year as a whole.

Why Buy Equifax Stock?

Whenever a company’s stock drops due to a negative one-time event, it’s tempting to swoop in and purchase some shares at a discount. However, with the stock making a slow recovery since 2017, the window to do this for Equifax has long passed.

Instead, investors should evaluate Equifax on its own merits. The good news is that Equifax has continued to win business in the wake of the data breach.

Just one month after disclosing the attack, for example, Equifax landed a $7 million fraud prevention contract with the IRS. Revenues continued to grow by 4% in Q1 2018.

Despite affecting 143 million consumers, the Equifax breach did not harm the company’s reputation as much among its true clients: the banks and other lending institutions that require access to Equifax’s data.

In addition, consumers’ attention has largely been diverted away from the Equifax breach toward other privacy scandals with companies such as Facebook.

Thanks to the wealth of information it possesses, and the few real competitors it has, Equifax has enough leverage to continue gaining clients in the wake of the attack.

The company’s current market capitalization of $13.4 billion is certainly nothing to shake a stick at.

Equifax Stock: Buy or Sell?

The case of Equifax is intriguing for many investors. As one of only three major credit reporting agencies, the company has been able to recover from a catastrophe that could have brought down other businesses.

However, there still remains the potential that repercussions from the Equifax [NYSE: EFX] breach could create future problems for the company.

For example, news could emerge that the stolen personal information has been used by malicious actors in a large-scale identity theft operation.

Recent Equifax stock returns have been decidedly mixed. Shares of Equifax fell by 5% in 2018, significantly underperforming the financial transaction industry as a whole, which rose by 15% in the same time period.

However, as of writing Equifax stock is up by 17% in 2019, outperforming the S&P 500’s rise of 11%.

Due to the current volatility and uncertainty surrounding Equifax, we don’t recommend either buying or selling right now. Longer-term investors could hold onto any Equifax shares they have for the long term, when the company may likely be able to keep putting the controversy behind it.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.