SunTrust: Equifax Settlement Could Lift Stock Overhang

Equifax Inc. EFX is reportedly nearing a settlement of around $700 million with government regulators, state attorneys general and a class action lawsuit.

This settlement would “materially eliminate uncertainty around lingering breach expenses,” according to SunTrust Robinson Humphrey.

The Analyst

Andrew Jeffrey maintained a Buy rating on Equifax and put the price target of $130 under review.

The Thesis

Although Equifax has not made any announcement, it is likely to finance any settlement with debt, Jeffrey said in a Monday note. (See his track record here.)

While the interest expense could lower annual EPS by 15-20 cents, the company has strong free cash flow and the potential expenses are onetime in nature, the analyst said.

Equifax’s organic revenue growth and margins bottomed in the first half of 2019, Jeffrey said.

While the second quarter will likely remain subdued, “waning share loss, NPI uptake, a slackening mortgage headwind and diminishing tech platform costs” are expected to improve results in the second half of the year and in 2020, he said.

The analyst said he expects the market to “look past” the onetime interest expenses related to the settlement and focus on the company’s improving fundamentals.