BofA: Equifax's Brand Is 'Impaired' After Data Breach

Equifax Inc. EFX' 2017 data breach led to "significant public backlash" and a brand that is now "impaired," according to Bank of America Merill Lynch.

The Analyst

BofA's David Ridley-Lane initiated coverage of Equifax's stock with an Underperform rating and $115 price target.

The Thesis

Equifax has succeeded in expanding its business over the years from its roots as a credit bureau to a diversified information services company, Ridley-Lane said in a Tuesday initiation note.

The data breach it suffered in 2017 impacted 148 million U.S. consumers and will remain the "dominant area of investor focus" moving forward, the analyst said. The regulatory costs and other expenses related to the breach will likely be "substantial," and aside from the financial damage, the company may suffer from the following, Ridley-Lane said:

A negative market share shift.
Challenges in realizing sales in other businesses.
Long-term damage to the direct-to-consumer business.
Regulatory or legislative changes that will impact the entire U.S. credit bureau industry.

Equifax faces multiple lawsuits and investigations from different government agencies, one of which is a reported criminal investigation by the Department of Justice related to insider stock sales, the analyst said.

In BofA's view, Equifax's challenged brand warrants a bearish stance on the stock, which is valued at an 18x multiple on the analyst's 2019E EPS — a discount to its five-year average forward P/E multiple of 20x.