Earnings Preview: Equifax

Equifax Inc. (EFX) is scheduled to announce its first quarter 2011 results on April 28, 2011, before the market opens and we see limited revisions in analyst estimates at this point.

Fourth Quarter Overview

Equifax’ fourth quarter 2010 adjusted earnings per share of 62 cents outpaced the Zacks Consensus Estimate by 2 cents. The quarter’s earnings also improved from 56 cents in the year-ago quarter. The earnings surprise was aided by growth across all revenue segments and demand for new products.

Strong growth across all segments also led to the 10.7% year-over-year improvement in revenue. Additionally, economic revival and the adoption of innovative products by clients backed the revenue growth.

Margins improved from the year-ago quarter. The operating margin expansion was supported by USCIS, TALX and North America Personal Solutions, partially offset by contraction in International and North America Commercial Solutions.

Equifax posted a solid fourth quarter beating the Zacks Consensus Estimates on both top and bottom lines. We believe that the company is poised to benefit from its leading position in important markets, capitalizing on heightened consumer concern regarding identity theft and profiting from strengthening international markets.

First Quarter Outlook

Equifax expects revenue to be up 6.0% to 8.0% from the year-ago quarter, based on contributions from domestic and international businesses and ongoing foreign exchange rates. Excluding the impact of acquisition-related amortization expense, Equifax expects adjusted earnings per share to range between 56 cents and 59 cents.

Agreement of Analysts

Out of the thirteen analysts providing estimates for the first quarter and fiscal 2011, none revised any estimate in the past 30 days. However, one analyst made a downward revision for fiscal 2012.

The limited number of changes to estimates point to the fact that there was no major catalyst during the quarter that could drive results. Consequently, most of the analysts are sticking to the estimates they projected post fourth quarter earnings.

Magnitude of Estimate Revisions

There was no change in the Zacks Consensus Estimates for the first quarter and fiscal 2011 over the past 30 days. However, the first quarter estimate moved down 2 cents to 58 cents per share in the past ninety days.

Also, the Zacks Consensus Estimate for fiscal 2011 dropped by four cents over the past ninety days. The Zacks Consensus Estimate for fiscal 2012 also fell 2 cents since the fourth quarter results. The analysts are constructive on the prospects for Equifax given its comprehensive set of data assets, analytics and decision-making technologies. But they remain cautious about margin expansion and sustainability of earnings.

Recommendation

With the sale of its direct marketing division, the company is now refocusing on its core business. It also plans to grow through product launches and overseas expansion.

However, given the company’s strong correlation to consumer and financial markets, as well as its U.S. exposure, improvement in results will at best be gradual, in pace with the country’s economic recovery. Stiff competition from Automated Data Processing Inc. (ADP) remains a concern.

Currently, Equifax has a Zacks #3 Rank, implying a short-term Hold rating.

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