Uhhh, My Bad+Equifax Deep Review

Sorry fellas, that was a long break, longer than I initially intended it to be. I’m back, and I’m going to try to be more regular for sure. Over the past week or so, I’ve been working on a review of this company, Equifax. Here is my write-up: I hope you enjoy!

An Equifax Writeup

Long-term success in investing is found by picking companies with wide moats born out of intrinsically high-quality business models and repeatable income streams. Equifax is one of those companies.

Two Products

Equifax has two streams of revenue. In one stream, their presence could be described as an oligopoly, while the other would be described as a monopoly. The oligopoly that Equifax operates in is credit rating, and this is what they are most famous for. Since 1899, when it began as two brothers going around Atlanta and asking for people’s purchasing history, Equifax has operated as a credit bureau. In this market, Equifax has a 34% market share, Experian 36%, and TransUnion 30%, with little room for differentiation, making these companies pretty much locked into their respective ⅓ market share. 

It is important to note that operating as a credit bureau is distinctly different from a company like FICO, which takes the raw data that credit bureaus possess and creates functioning and widely used credit scores. With the exception of a program established by the three credit bureaus in 2006 called VantageScore, FICO does not compete with the credit bureaus. Instead, FICO really operates as a customer. 

While investing in a credit bureau from 1899 might seem like a decision that Mr. Burns from The Simpsons would make, the total addressable market (TAM) is growing at a rate that makes credit appetizing. In fact, the credit bureau TAM is expected to grow at 13.5% CAGR for the next seven years ($386 billion), effectively gifting a larger pie from which Equifax is practically guaranteed a third of. One of the greatest worries is always about the floor of a company’s revenue growth, but every company wants more data on customers, especially trustworthy data, meaning that both Equifax has a high floor and a high ceiling.

If Equifax was just a credit bureau in an oligopoly, then it would be pretty useless, and likely, it would fit better in a credit ETF than as an individual investment. However, Equifax is unique, in that it owns and operates something called The Work Number (TWN). The Work Number is a potentially morally questionable, but very profitable, data-monetization vertical that Equifax is exploiting well. TWN is a simple construct. In short, it is a database, a really, really large database. TWN holds 750 million employment records, with 180 million of those being actively employed. These numbers represent 75% of non-farm payroll and 56% of the 225 million income-producing Americans. Every single person in this database has their name, address, tax ID, SSN, employment status, hire date, termination date, tenure times, titles, pay frequency, salary, gross earnings throughout their career, and more available in this database. Lenders, landlords, government agencies, and employers all use TWN to check a person’s financial status throughout their employment history. And the beauty of the system is that it is all automated, so margins are sky-high (gross-margin: 50%+, operating margin: 19%). Employers feed data in and different entities look at it on the other side. Everything is processed automatically, with AI in some instances, and everything can scale infinitely. 

In terms of competition for TWN, there is virtually none. TWN is incredibly entrenched, has extremely sticky, long-lasting contracts, and is far and away the best service. It is important to also note that TWN is not merely a stagnant digital repository. Everything is on the cloud with TWN, as it rapidly ingests data and pumps out tax documents, data for employers/governments/banks, and with other aspects of the Equifax EWS (their financial services department) platform, operates payroll, gives labor-cost insights, recovers improper payments, helps governments with audits, helps scout for new employees, and is in the process of expanding to Australia, Canada, and the UK (due to their more relaxed data rules, when compared with the EU), allowing for an international system. TWN, especially when combined with EWS, is really more like a monolithic, totally automated factory. 

You can think of the credit bureau as the floor, and TWN, this cloud-solutions entity, as the ceiling. Equifax has to do virtually zero marketing, their market continues to grow, and they can scale every aspect of their business infinitely because they need so few people. The credit bureau is a nice bonus that is disguising a really innovative product. In other words, if TWN was its own business, some Silicon Valley startup from 2014, nobody would ever shut up about it, but because it’s wrapped in the malaise of a credit rating business from the 19th century, people miss the potential for massive growth. Qualitatively, I think Equifax is positioned quite well, and as you can see below, the number of participants in TWN continues to grow, providing Equifax with more leverage and pricing power in the future.

Under-Earning

Now, there are a ton of great companies with great products out there, but Equifax is unique in that it is being limited by external factors. The housing and job markets are ice cold right now. In 2025, we are on pace for a 12% decline in mortgage issuance (5th year of substantial decline in a row), and in terms of hiring, the country is moving at an 8% slower rate than last year. The weak mortgage business affects the credit bureau, and the weak hiring market, remember that employers looking for information was a critical part of TWN, is hampering TWN. Despite these headwinds, Equifax continues to grow both revenue and earnings at a decent albeit not stellar clip. Revenue is up 7% over the TTM and EBITDA is up 8%. Decent growth of these two critical aspects is so impressive because a bad housing market and a bad job market would theoretically cause both earnings and revenue to decline, but they have continued to grow nonetheless. It is not necessarily that 7% revenue growth is the worst-case scenario, but it is more that revenue and earnings are being limited by external factors, yet they show solid resiliency.

Under-earning is only a valid excuse provided there is an apparent catalyst to remove the blockage. That catalyst will be Donald Trump’s next Fed Chair. For years now, Donald Trump has been extremely opposed to Jerome Powell on everything, particularly on Jerome Powell keeping interest rates too high. It is incredibly unlikely that the next Fed Chair goes as aggressive as Trump would want, even if it is one of Trump’s most ardent supporters, but it is an inevitability, one way or the other, that rates will be lowered. The Fed does not have direct control over mortgage rates, but any lowering of the federal funds rate will eventually depress mortgage rates, spurring home buying, and therefore, boosting use of Equifax’s credit data. Besides, the mortgage market is in its worst slump since the 90s. That will not continue to happen. It is virtually impossible to correctly guess when or why the reversal will occur, but it is reasonable to assume a return to the mean. It is also worthwhile to reiterate that, in one of the worst mortgage markets in 30 years, Equifax is still growing revenue at 7%. Similarly, I think the economy is about to heat up again, bringing the job market with it. The economy has slowed and lagged a bit, but Donald Trump, and the Republican Party along with him, has shown a reluctance to take public blame for very long, meaning that continued slower growth will lead to more levers, like the funds rate or increased government spending, being pulled. Sure, this assumption, that the economy will pick up speed again in the job market, does mean taking a bit of a leap of faith, but in totality, betting on the US economy has never been a bad one. 

Finally, one can assume that while the picture gets rosier and Equifax continues to see their revenue increase, I think it is absolutely reasonable to also expect their operating margin to increase from an already very good 19%, to a stellar place somewhere in the high-20s, low-30s. Previously, EWS was not on the cloud entirely, and Equifax paid for that when they were hacked in 2017, resulting in a bunch of information being stolen. Over the past, near half-decade, Equifax has had to pay almost a billion dollars in damages and litigation fees. At the same time, they have dumped money, by the truckload, into CAPEX to fully transition their operations to a cloud-based business model, taking their operating margin down from 24% to 19%. They have now completed this transition, with 85% of their total revenues coming from this new Cloud Platform, not old, legacy models. This should provide yet another tailwind.

Leadership

One of the most important aspects of any company is obviously leadership, specifically the CEO. In the vast majority of companies, the board is too removed, and other executives are not wide-reaching enough. From the CEO, comes the vision for the company, and Mark Begor is a confidence-inspiring CEO. In 2018, when he took over from the previous leadership that oversaw that data breach, Mark decided to take Equifax digital, and despite seeing the mortgage market fall over a third in consecutive years, despite an aggressive lawsuit, and despite the company’s reputation as a boring and old credit bureau, Mark took Equifax very much into the future. The company saw revenue grow 50% since 2018, CAGR of market cap of 14%, and revenues move almost entirely to the cloud, a much more sustainable and healthy approach that allows for so much growth in the future, while not taking on any more risk. He’s charismatic, knows what he’s talking about, and has the necessary, software-centered approach that will allow Equifax to continue to develop and add to its pricing power in the digital sphere.

Challenges(?)

In terms of challenges, nearly everything is about regulation. There was a recent antitrust lawsuit that was filed by a few banks that was allowed to proceed in Philadelphia, but I don’t see that going too much further. It’s possible that Equifax has to pay out a few million, but even that would surprise me. There won’t be anything like a shiver breakup because the federal government hasn’t followed in filing suit, and I think there is a 99.999…% chance that Equifax won’t have to share any aspects of their TWN database. At the very, very worst, there will probably be a small monetary sum that the company has to pay out, something that doesn’t even scratch a percent of profits.

Then, there is the worry that comes with any large cloud company with a ton of private data, in the form of cyber-attacks. One damaging cyber-attack allows for more government regulation, a class-action lawsuit, and another decade of making sure an error doesn’t happen again. I think there is an incredibly low chance that this happens, as it is in the best interest of everyone involved that the maximum amount of precautions are taken. In 2017, when there was a significant breach, pretty much all of the executives were shoved, and as previously mentioned the company had to spend a billion dollars total, as well as re-orient their entire model of business to be safer.

Finally, there is the job market piece. It is likely, in my view, that the job market heats up again, that the US stays out of a recession, and that money begins to flow around the country at a faster rate. However, if AI, for example, forces unemployment up in the long-term, or if the economy is in stop-start mode for the next five years, this company is going to lag the market. These fears naturally find their way into the back of one’s mind, however; it is far more likely than not that AI creates a need for more employees, as every major, previous technological innovation has. It is also more likely that despite some headwinds, the economy gets righted, if for nothing else than the fact that politicians have previously refused to let the US economy slide, instead preferring to provide constant stimulus.

Valuation

Really, valuation should be one of the last things you look at when you are thinking about buying a stock. Making sure that growth is nearly assured, and that the company is of intrinsically high value is far more important. That said, valuation is still worthwhile to check on, as it can raise red or green flags that need to be further researched.

Here is a very simple DCF model that confirms my rating on this company as a buy. A FCF/share growth rate of 17% is certainly substantial, but I think the previously mentioned tailwinds could absolutely support this number. I mean, over the last 12 months alone, Equifax has come in at 24.9% per annum, so actually, 17% is really more conservative. I use a much more qualitative approach in terms of valuation anyway, but this more quantitative approach confirms that a buy at the current price is perfectly reasonable.

Conclusion

Equifax is an innovative tech company wrapped in an old stodgy cloak. This company is primed for growth. They are guaranteed a third of all credit information in the United States, and the very profitable information sector of their business is unassailable because nobody can get their hands on that much data, especially because of the contracts Equifax has in place. I will likely be making it the seventh position in my portfolio at a 12% net target.

I had some images I wanted to put in, but Squarespace won’t let me, so I’m going to see if I can figure that out.