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Equifax (EFX) to Post Q4 Earnings: Disappointment in Store?

Zacks

Equifax Inc. EFX is expected to report fourth-quarter 2017 results this week. The question lingering in investors’ minds is whether this credit information providing company will be able to post a positive earnings surprise in the to-be-reported quarter.

Last quarter, the company posted a positive earnings surprise of 2.7%. Notably, Equifax outperformed the Zacks Consensus Estimate in each of the trailing four quarters with an average positive earnings surprise of 2.4%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

We believe last year’s data breach will continue to hurt Equifax’s fourth quarter’s financial results. Notably, in September 2017, the company announced that very sensitive personal data of approximately 143 million consumers has been stolen from its database.

Since then, the brand image and creditability of Equifax has been in question and has been facing huge customer criticism, while cybersecurity companies are questioning the company’s preparedness and response to the massive data breach. Moreover, with lawmakers and investigating agencies probing the mishap, its troubles are unlikely to end any time soon.

We believe the entire issue might result in loss of customers and the company will also have to make huge compensation to its clients. This will have an adverse impact on the company’s financial performance in the near term.

It should be noted that in third-quarter 2017 the company had witnessed the slowest revenue growth rate in the last several years. This was mainly due to the dismal performance at its U.S. Information Solutions (USIS) division which registered a year-over-year 3% decline in revenues to $307.7 million, reflecting massive impact due to the data-breach scandal.

Furthermore, escalating expenses related to the cyber attack will remain a drag on the company’s profitability. Per its 10-Q filing, the company expects to incur more expenses in the form of legal and professional services associated with the data-breach incident. Furthermore, it had stated that its expenses might flare up due to increased investments in IT and security solutions as well as insurance services.

Equifax, Inc. Price and EPS Surprise

Equifax, Inc. Price and EPS Surprise | Equifax, Inc. Quote


What the Zacks Model Unveils?

Our proven model does not conclusively show that Equifax is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Equifax carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company has an Earnings ESP of -0.29%. The combination of Equifax's Zacks Rank #3 and a negative Earnings ESP makes surprise prediction difficult.

The Zacks Consensus Estimate for the quarter under review is pegged at $1.35, representing year-over-year decline of 4.9%. We note that the Zacks Consensus Estimate has remained unchanged over the past 30 days. Additionally, analysts polled by Zacks project revenues of roughly $824.9 million, down approximately 3% from the year-ago quarter.

Some Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Applied Materials, Inc. AMAT has an Earnings ESP of +0.57% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

SINA Corporation SINA has an Earnings ESP of +7.60% and a Zacks Rank #3.

HubSpot, Inc. HUBS has an Earnings ESP of +1.32% and a Zacks Rank #3.

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