Stock Analysis & Ideas

Equifax In troubled Waters; Issued Wrong Credit Scores

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Equifax offered incorrect credit scores to thousands of consumers. The company blamed a coding error for the wrong calculations. Despite headwinds, EFX has a maximum Smart Score on TipRanks.

Wall Street Journal reported that leading consumer credit reporting and data analytics company Equifax (NYSE:EFX) provided wrong credit scores to millions of consumers from mid-March to early April. Equifax blamed a coding issue for the error.

Per the report, scores for several customers changed by as much as 20 points, which is enough to alter the interest rates for the loan applicant and could even result in a rejection.

In response to the report, Equifax announced that fewer than 300,000 consumers witnessed a score shift of 25 points or more. The company identified a coding issue that resulted in the miscalculation. However, Equifax pointed out that the credit reports didn’t change due to this issue and stressed that a score shift doesn’t necessarily indicate that a consumer’s credit decision was adversely impacted. The firm added that the problem was fixed.  

While the actual impact of the error is still unknown, it puts Equifax in a bad light, which is already battling mortgage headwinds. 

It’s worth mentioning that Equifax has lowered its FY22 revenue guidance twice this year, citing weakness in the mortgage market due to the higher interest rates. Further, adverse currency movements remain a drag. 

Equifax sees the U.S. mortgage market credit inquiries to fall by more than 46% in 2H22. This assumption indicates that the mortgage market could continue to decline, negatively impacting Equifax’s financial performance. 

Is Equifax Stock Still a Good Buy?

While Equifax is facing headwinds in the mortgage business, its non-mortgage business continues to perform well. During the last reported quarter, its non-mortgage business (which represents over 75% of Equifax) delivered solid growth of 22% on a constant currency basis. 

Also, Needham analyst Kyle Peterson is bullish on EFX. He finds Equifax’s risk-reward “favorable.” Peterson stated, “While the tough macro backdrop continues to weigh on EFX’s mortgage business, we note that the non-mortgage business (75%+) is generating healthy growth and showing no signs of a slowdown despite increased fears of a recession.”

Including Peterson, EFX stock has received 10 Buy recommendations. Moreover, it has got three Hold recommendations. Overall, EFX stock sports a Strong Buy rating consensus on TipRanks. Meanwhile, analysts’ average price target of $226 implies 9.5% upside potential. 

Also, EFX stock has positive signals from hedge funds and retail investors who have raised their holdings. All in all, EFX stock has a ‘Perfect 10’ Smart Score, which means the stock is likely to outperform the broader market.

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