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Equifax Continues to Plunge Amid Mounting Scrutiny Pressure


Shares of Equifax Inc. EFX continue to hit new lows amid mounting scrutiny pressure from lawmakers, investigating agencies and regulators over the credit reporting company’s response to the data breach. The stock tumbled again yesterday due to a series of events which occurred during the entire day.

Recent Additions in Trouble

Intensifying troubles for Equifax, a group of 37 U.S. Senators, yesterday, vowed for investigation by the Federal Trade Commission (FTC) Securities and Exchange Commission (SEC) and Department of Justice. They argued that there is possibly a higher chance of a potential insider trading, as three Equifax’s executives had sold shares in three days after the company discovered the data breach.

Meanwhile, the state of Massachusetts announced yesterday that it is planning to file a lawsuit against the company on behalf of its residents. If the state goes ahead with its plan, then it will be no surprise if other states follow suit.

Furthermore, a U.S. house panel is probing the data breach and announced that it would testify Equifax’s chief executive — Richard Smith — on Oct 3.

Shares of Equifax plunged nearly 15% yesterday after the aforementioned news surfaced. It should be noted that the stock has lost over 30% of its value from last Thursday’s closing price. In the year-to-date period, Equifax has lost 16.3%, significantly underperforming the industry to which it belongs to, which has recorded growth of 27.3%.

What’s Bothering Investors?

On Sep 7, Equifax announced that highly sensitive personal data of approximately 143 million consumers has been stolen from its database. Reportedly, nearly two-third of the adult U.S. population has been impacted due to this cyber attack.

Per the company, the data breach occurred between mid-May and July this year, which was discovered on Jul 29. Apart from some sensitive personal information, hackers have stolen credit card numbers of about 209,000 U.S. consumers and “certain dispute documents with personal identifying information” of nearly 182,000 U.S. consumers.

The recent cyber attack has heavily tarnished the brand image, reputation and credibility of Equifax. The company is facing huge customer criticism, while cybersecurity companies are questioning its preparedness and response to this massive data breach. Moreover, with lawmakers and investigating agencies probing the mishap, troubles for Equifax are unlikely to end any time soon.

Investors seem concerned that the entire issue may result in loss of customers and the company may also have to make huge compensation to its clients. This is feared to have an adverse impact on the company’s financial performance in the near term.

Bottom Line

This is not the first instance when consumer data has been stolen from a company’s data base. Last December, Yahoo! Inc. reported a massive data breach, where private information of over one billion users was compromised. Other big companies like Target Corporation TGT, Anthem Inc. ANTM and Sony Corporation SNE have also been victims of cyber attack, when fraudsters stole large number of consumer data.

However, sensitivity of the information exposed in Equifax’s data breach case makes it one of the worst in recent times. The latest data breach at the company will likely have a lasting impact as criminals can use the stolen resources for opening new accounts, applying for credit cards or loans, buying insurance, renting an apartment or even for tax frauds.

It should be noted that banks and financial institutions rely on the United States’ three main consumer credit reporting agencies — Equifax, TransUnion TRU and Experian. Therefore, with access to social security, driver’s license and credit card numbers, criminals can make such frauds due to which consumers will have to suffer for longer periods of time.

Hence, we believe that investors’ concerns are justified as the mishap will have a lasting impact on Equifax’s results, in the form of financial costs relating to settlement of lawsuits and litigation expenses. Moreover, it will be very tough for the company to repair its brand image, as well as retaining its current customer base.

Currently, Equifax carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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