Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Does Equifax make money from Credit Reports?

Interestingly, the credit-reporting agency Equifax Inc. (NYSE: EFX) is a growth stock.

To explain, Stockrow estimates Equifax’s revenues grew at a rate of 8.44% in the quarter ending on 31 December 2019. Additionally, Equifax’s quarterly revenues grew from $875 million to $905.80 between 30 September and 31 December 2019.

Plus, Equifax’s quarterly gross profit grew from $501.2 million and $522.9 million during the same period. However, Equifax’s operating fell from $121.6 million to $47 million in that time. As a result, Equifax reported a net income of $9.1 million on 31 December 2019 down from $81.10 million three months earlier.

How Much Money does Equifax Make?

Thus, Equifax generates more revenue but makes less money from its business. However, Equifax is generating more cash.

For example, Equifax’s operating cash flow rose from -$164.9 million to $230.70 million in the quarter ending on 31 December 2019. Importantly, Equifax’s ending cash flow rose from $31.7 million to $233.8 million in the same period.

Plus, Equifax’s financing cash flow fell from $296.6 million on 30 September 2019 to $131.5 million on 31 December 2019. I think the cash flow shows Equifax borrowed less money during the last quarter.

Consequently, Equifax’s cash and short-term investments rose from $167.5 million on 30 September 2019 to $401.3 million on 31 December 2019. Thus, Equifax generates more cash from its business.

What Value Does Equifax Have?

Equifax claimed to offer credit reports on over 800 million people and 88 million businesses worldwide in 2017, Wikipedia claims.

However, the U.S. Consumer Financial Protection Bureau (CFPB) received over 57,000 complaints about Equifax between 2012 and 2017, Fast Company alleges. Additionally, Fast Company estimates the CFPB received 31 complaints against Equifax each day in that period.

Consequently, the value of both Equifax (NYSE: EFX) and its services are questionable. Notably, the accuracy and utility of the value of the data Equifax sells could be poor. Moreover, there are allegations of poor security at Equifax.

In fact, Equifax agreed to pay customers up to $425 million to 147 million customers affected by a data breach in a January 2022 settlement, the U.S. Federal Trade Commission (FTC) reports. U.S. Attorney General William Barr alleges the Chinese military hacked Equifax in 2017 and stole data on tens of millions of American, Canadian, and British consumers, the BBC reports.  

Mr. Market Overprices Equifax

Consequently, I think Mr. Market overpriced Equifax Inc. (NYSE: EFX) at $142.04 a share on 28 February 2020.

However, Equifax is a decent dividend stock that will pay a 39₵ quarterly dividend on 3 March 2020. In addition, credited Equifax with a dividend yield of 1.08%, a payout ratio of 27.16% and an annualized payout of $1.56 on 28 February 2020.

I think investors need to avoid Equifax because there are better and cheaper dividend stocks out there. Some of those stocks include Kroger (NYSE: KR), Apple (NASDAQ: AAPL), BNYMellon (NYSE: BK), Microsoft (NASSDAQ: MSFT), Wells Fargo (NYSE: WFC), and Bank of America (NYSE: BAC).

Equifax is a Terrible Stock

In the final analysis, I think Equifax is a terrible stock because its product; credit reports is bullshit. To explain, credit reports try to predict loan default rates by publicizing records of loan or bill payment.

Unfortunately, the credit report records are often inaccurate. Incredibly, credit reports do not track an individual’s income. In fact, Equifax could give an American with no money and no job a “good credit rating.” Meanwhile, a billionaire could have “a bad credit rating.”

Remember, the infamous NINJA (NO-Income No Job) loans of the 2007 mortgage crisis. Companies, such as Equifax gave many of the NINJA borrowers “good credit ratings.” Thus, Equifax contributed to the mortgage crisis by making it easy for fraudsters to give mortgages and loans to people with no money.

Therefore, credit reports do not predict an individual’s ability to pay his or debts. Smart investors will stay away from companies, like Equifax (NYSE: EFX), that sell dubious products and services.