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Equifax’s solid Q2 leads to price target hikes by Goldman Sachs, Baird, and Needham: Should you buy?

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Equifax Inc. (NYSE: EFX) delivered a robust performance in its Q2 2024 earnings, surpassing expectations and igniting a flurry of optimistic reactions from financial analysts.

Analysts at Goldman Sachs raised their target from $246 to $277, maintaining a ‘Neutral’ stance. Baird, seeing more potential, pushed their target from $260 to $290, sticking with an ‘Outperform’ rating.

Needham was even more optimistic, increasing their target from $305 to $320 and maintaining a ‘Buy’ rating. Similarly, Oppenheimer set their sights at $300, up from $272, also with an ‘Outperform’ rating.

Q2 earnings

This flurry of adjustments followed the announcement of Equifax’s Q2 earnings on July 17, 2024, which revealed a Non-GAAP EPS of $1.82, surpassing expectations by $0.09.

The reported revenue of $1.43 billion, though in line with forecasts, underscored an 8.3% year-over-year growth. Notably, U.S. mortgage revenue grew 4% despite a 13% decline in USIS mortgage credit inquiries, underscoring resilience in a tough mortgage market.

The Workforce Solutions segment reported a 5% revenue increase, bolstered significantly by a 20% jump in Verification Services non-mortgage revenue, primarily driven by government and talent solutions.

Moreover, international revenue saw a robust 17% growth in reported terms and an even more impressive 28% on a local currency basis, with organic growth clocking in at 12%.

Equifax’s strategic utilization of its new EFX Cloud platform has evidently paid dividends.

The platform hosted 89% of new models and scores built using Artificial Intelligence and Machine Learning, marking a significant leap in product innovation, as reflected by a 12.5% new product Vitality Index for the quarter.

These innovations are part of Equifax’s broader EFX2026 strategic priorities, which aim to bolster the company’s long-term revenue and operational efficiency.

Outlook and valuation

Equifax reiterated its full-year 2024 guidance with a revenue midpoint expectation of $5.720 billion, representing an 8.6% increase, and an adjusted EPS of $7.35.

This guidance takes into account the projected 11% decline in 2024 U.S. mortgage credit inquiries, paralleling the reduction in cloud spending, which is expected to further drive cost savings and profitability.

Despite these robust figures, a few analysts believe that Equifax might be overvalued.

They point out that this ongoing high valuation is driven by market momentum and optimism, despite a backdrop of high mortgage rates and potentially overstated economic strength.

However, Equifax’s ability to maintain strong revenue growth, particularly in non-mortgage areas which make up roughly 80% of its revenue, provides a counter-narrative to concerns about overvaluation.

Looking at the broader picture, Equifax’s operational adjustments and cloud infrastructure enhancements have positioned it well for future scalability and efficiency.

The company’s push towards more innovative and data-driven solutions, particularly in government and talent solutions, is likely to sustain its revenue growth trajectory.

With the fundamentals scrutinized and the company’s growth trajectory outlined, the stage is set for us to pivot our analysis.

Let’s turn our attention to the stock’s charts to see if the upward momentum in fundamentals is mirrored in Equifax’s price trajectory, providing us with a clearer picture of its potential as an investment.

Closing above $271.5 critical

Although Equifax’s stock has surged more than 60% since November last year, it still trades below its all-time high above $300 made at the end of 2022.

If we draw a trendline from that peak (displayed in the chart) we can find that it briefly breached above it yesterday after the Q2 earnings release but retraced immediately.

EFX chart by TradingView

For bullish investors, this should be a cause of concern. Despite the overall bullish trend across timeframes, one shouldn’t initiate a long position unless the stock gives a decisive daily closing above this bearish trendline which currently lies near $271.5.

Traders who have a bearish outlook must also refrain from shorting the stock at current levels and wait for it to undergo some retracement or consolidation.

If the stock falls below its 50-day moving average, currently at $242, that will suggest short-term weakness, where one can initiate a short position.

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