Wells Fargo Says Time To Buy Equifax Shares

Wells Fargo upgraded Equifax (EFX) to Outperform, the firm's equivalent of a buy rating, from Market Perform. The firm believes that the recent decline in the stock has created an attractive entry point.

CORE BUSINESS SAFE: Equifax's core business to business operations probably won't be impacted by the company's recently announced data breach, according to Wells Fargo analyst William Warmington, Jr. In a base case scenario, the company will have to pay a $500M fine and will lose 50% of its consumer business, while its operating costs will rise by $25M and its regulatory costs will increase $30M, the analyst stated. Additionally, the margins of its remaining U.S. consumer business will drop by 50% because it will have to pay for free credit monitoring service for consumers, he estimated. In this scenario, the company's 2018 earnings before interest, taxes, depreciation and amortization will be 8% lower than Warmington previously expected, he estimated. In a bear case scenario, Equifax will have to pay a $1B fine and lose all of its U.S. consumer business, he believes. Its operating costs would rise by $50M and its regulatory costs would jump by $65M, he estimated. This scenario would cause Equifax's EBITDA to drop by 23% versus Warmington's previous outlook.

TARGET: The analyst trimmed his price target on the shares to $127 from $135.

PRICE ACTION: In morning trading, Equifax climbed 4% to $102.75. The stock is down nearly 30% since the day after the company disclosed on September 7 that it had been the victim of a cybersecurity incident potentially impacting approximately 143M U.S. consumers.