When you purchase an item on credit, take out a loan or get a mortgage, the credit card company or bank that lent the money is familiar with your payment terms and history. That make sense, but there is also another entity that gets to learn all about you, a credit bureau.
So, who are these elusive data aggregators and why are they collecting such personal financial information? Credit reporting agencies collect a wealth of financial and personal information about about your wealth. They then offer the information for sale in the form of a credit report. In this article we'll explain what a credit report is and what information is being harvested. Then we'll examine some of the key harvesters to see if one is worthy of investment.
Background: What Are Credit Reports?
A credit report is a compilation of certain personal and financial information on a given individual. The document provides a snapshot of that individual's financial health as well as their payment history.
It contains a surprising large amount of information. It begins with your name and social security number. These agencies will also collect data on any open accounts you have. This includes any credit cards the person has open, whether there's a balance on the card or not. Open accounts also include information on car loans and home mortgage balances. Information such as the account number, bank that made the loan, the date the loan was taken out, and again the outstanding balance may be available.
Reports will also likely contain information about any accounts that are currently in collection as well as their status. Judgments or liens against a person's property may also be revealed as might any bankruptcy filing information. (To learn more, see The Importance Of Your Credit Rating and Check Your Credit Report.)
The Big Three Credit Bureaus
The "big three" in the business are Equifax (NYSE: EFX) and then two privately held companies Trans Union and Experian. Equifax may be the best known of the major reporting agencies. It has a terrific reputation for accuracy, and it has been around for more than 100 years. It is also the only publicly traded credit reporting agency of the big three.
In Equifax's most recent third quarter, the company earned $67.9 million (48 cents per share). That's down sharply from the $78.9 million (61 cents per share) it earned in the comparable period last year. However those numbers are a bit deceiving, because in last year's quarter it received a boost of about a dime per share from the reversal of tax reserves and litigation matters. Meanwhile, its revenue increased about 25% from $394.6 million in the comparable period last year to $492.5 in Q3 this year.
In terms of future earnings, Wall Street expects Equifax will earn $2.30 per share this year and $2.56 in 2008. That implies a growth rate of about 11.3%. Based upon this growth expectation and the current share price, I think there is some upside potential for the stock - perhaps 10% or so from current levels.
The Bottom Line
Credit reporting agencies collect a wealth of personal information on individuals and then sell that data to potential lenders. Of the big three credit bureaus, only Equifax is publicly traded. Based upon its growth possibilities in the next year, I think the shares would be more fairly valued in the low $40 range.
For related reading, check out How Credit Cards Affect Your Credit Rating.