Morningstar has issued a BUY recommendation for Equifax Incorporated (NYSE: EFX) with a fair value estimate of $285 per share. The report highlights Equifax's robust operational performance, driven by its Workforce Solutions segment, and a wide economic moat rooted in its data-driven services. Currently trading at $248.27, Equifax’s shares are undervalued at 0.87x its fair value estimate, presenting a potential upside for long-term investors. However, the report also outlines headwinds in mortgage revenue growth and operational risks, emphasizing the need for cautious optimism.

Equifax: Undervalued and Poised for Growth

Fair Value and Target Price Morningstar has revised its fair value estimate for Equifax to $285, down from $295, reflecting a modest reduction in mortgage-related revenue projections for 2025. The revised valuation corresponds to a forward price-to-earnings (P/E) ratio of 29x for 2025, supported by expected compound annual revenue growth (CAGR) of 10% over the next five years.
Investment Opportunity
Trading at $248.27, Equifax’s current price offers a 14.8% upside to its fair value. With its exemplary capital allocation and expanding margins in high-growth areas like Workforce Solutions, Equifax presents a compelling opportunity for investors seeking exposure to the data-driven services sector.

Key Growth Drivers

Workforce Solutions: A Revenue Engine Equifax’s Workforce Solutions segment, accounting for 44% of revenue and over half of EBITDA, remains a critical growth driver. Non-mortgage verification services, including income and employment verification for government and private sectors, grew by 19% year-over-year, underlining its strong potential.
Expanding Use Cases and Market Share
The company’s strategy to diversify verification services beyond mortgages—into auto lending, employment screening, and government contracts—positions it for sustained growth. With over 650 million employment records, Equifax benefits from a first-mover advantage that creates high barriers to entry.

Challenges and Risks

Mortgage Revenue Headwinds Higher mortgage rates and subdued refinancing activity are expected to weigh on Equifax’s mortgage verification revenues. This segment's performance, which grew just 4% in Q3 2024, lags behind non-mortgage verification growth.
Operational and Data Security Risks
Equifax’s history of data breaches remains a critical risk factor. While the company has made significant investments in cybersecurity, another breach could harm its reputation and disrupt its operations.

Capital Allocation and Strategic Investments

Exemplary Management Practices Morningstar assigns Equifax an exemplary capital allocation rating, citing its strategic acquisitions like TALX and Kount, which have bolstered its Workforce Solutions and fraud prevention capabilities.
International Expansion
The acquisition of Boa Vista in Brazil and Veda in Australia demonstrates Equifax’s ambition to scale globally. Although international operations currently yield lower margins than U.S. operations, growth in emerging markets could enhance profitability.

Investor Takeaways

Key Investment Levels - **Fair Value Estimate**: $285 - **Entry Point for Investors**: Below $250 (current level) - **Target Price for Profit-Taking**: $285-$300
Outlook
Equifax’s wide moat, robust revenue streams, and strategic investments make it a strong candidate for growth-focused portfolios. However, investors should monitor mortgage market trends and cybersecurity developments closely.

Disclaimer

This report is for informational purposes only and does not constitute financial advice. Investors are encouraged to conduct their due diligence and consult with a licensed financial advisor before making investment decisions.