Will Cybersecurity Issue Weigh On Equifax (EFX) Q1 Earnings?

Equifax Inc. (NYSE:EFX) is scheduled to report first-quarter 2018 results on Apr 25, after market close.

We expect expanding data and machine learning-based analytics solutions, increased penetration in the identity and fraud prevention market and continuous expansion of its verification business to drive its top line in the to-be reported quarter. The bottom line is likely to decline due to buyout-related amortization expenses and costs associated with the cybersecurity incident.

We observe that shares of Equifax have rallied 11.2% over the past six months, significantly outperforming the S&P 500’s gain of 4.7%.

Top Line to Improve Year Over Year

Equifax operates through four segments — U.S. Information Solutions (USIS), International, Workforce Solutions and Global Consumer Solutions. While we expect strong performance of International and Workforce Solutions segments in the to-be-reported quarter on a year-over-year basis, the company’s business from USIS and Global Consumer Solutions are likely to decline.

Revenues from the International division (including Europe, the Asia Pacific, Canada and Latin America) are expected to increase on the back of its expanding data and machine learning-based analytics solutions in Europe, Canada and Latin America, increased coverage in Australian and Latin American fraud prevention market and growing potential in debt management across the world. Revenues from product launches is another key growth catalyst. The Zacks Consensus Estimate for this segment’s revenues is pegged at $243 million, reflecting year-over-year growth of 12.5%.In fourth-quarter 2017, segment revenues advanced 15% year over year to $244.8 million.

Revenues from the Workforce Solutions segment are likely to improve driven by continuous expansion of its verification business with progressive work culture and increasing associations, coupled with global expansion into Canadian and Australian markets. Within the segment, the Employer Services unit is likely to witness increase in hiring and on-boarding solutions. The Zacks Consensus Estimate for this segment’s revenues is pegged at $212 million, reflecting year-over-year growth of 6%.In fourth-quarter 2017, segment revenues climbed 6% year over year to $183.4 million (inclusive of 11% sales growth in Verification Services and 5% decline at Employer Services).

Revenues from USIS division are expected to decline owing to a decline in mortgage market activity and the negative impact of the cybersecurity incident. The Zacks Consensus Estimate for this segment’s revenues is pegged at $306 million, reflecting year-over-year decline of 1.3%.In fourth-quarter 2017, segment revenues suffered a 1% year-over-year decline to $313 million.

Revenues from Global Consumer Solutions segment are likely to get affected by a declining subscriber base. The Zacks Consensus Estimate for this segment’s revenues is pegged at $93 million, reflecting a year-over-year decline of 12.3%. In fourth-quarter 2017, segment revenues amounted to $97.3 million, down 2% year over year.

Strength across International and Workforce Solutions segments will contribute toward year-over-year growth of Equifax’s total revenues, the Zacks Consensus Estimate for which is currently pegged at $854.02 million, reflecting year-over-year growth of 2.6%.

Notably, the consensus estimate falls within the company guided range of $850-$860 million, which reflects year-over-year growth of 2-3%. The guidance also includes a 1% benefit from foreign currency movements. In fourth-quarter 2017, revenues rose 4.7% from the year-ago quarter to $838.5 million. It included a 3% negative impact of the cybersecurity incident.

Bottom Line to Decline Year Over Year

The Zacks Consensus Estimate for earnings per share in the to-be-reported quarter is pegged at $1.37, indicating year-over-year decline of 4.9%.

The decline is expected on the back of buyout-related amortization expenses and costs associated with the investigation, rectification, legal and professional services and improved security services in relation to the cybersecurity incident. Reduced benefits from foreign tax items are likely to act as another negative catalyst. Notably, these headwinds are expected to offset the tax benefits from the new tax (Tax Cuts and Jobs Act) law.

Notably, the consensus estimate is in line with the midpoint of the previous guidance range. Equifax anticipates EPS for first-quarter 2018 to be in the range of $1.34-$1.39 (inclusive of a benefit of 1 cent from foreign currency movements). In fourth-quarter 2017, earnings declined 2% from the year-ago quarter to $1.39 per share.

Our Model Doesn’t Suggest a Beat

Please note that according to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Equifax has a Zacks Rank #3 and an Earnings ESP of 0.00%, a combination that makes surprise prediction difficult.

Stocks to Consider

Here are some stocks from the broader Business Services sector that investors mayconsider, as our model shows that these have the right combination of elements to beat on earnings in first-quarter 2018:

Mastercard Incorporated (NYSE:MA) has an Earnings ESP of +0.83% and a Zacks Rank #2. The company is slated to report quarterly numbers on May 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Brink’s Company (NYSE:BCO) has an Earnings ESP of +5.25% and a Zacks Rank #2. The company is slated to report quarterly results on Apr 25.

FLEETCOR Technologies, Inc. (NYSE:FLT) has an Earnings ESP of +0.37% and a Zacks Rank #2. The company is expected to report quarterly numbers on May 7.

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