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Tickers in this Article: EFX, FIC, DNB, ADP, PAYX
Equifax (NYSE:EFX) generates most of its revenue by compiling consumer credit information and selling it to businesses that rely on this data to assess credit risk. With only three key players in this sector, Equifax maintains a sustainable advantage over its competitors. The company's growth comes primarily from the maturity of complementary avenues to its core business, which appear to create more upside potential than downside risk in the stock. Of course, this spells good news for investors.

Recent Results
As with most firms, 2008 top line trends at Equifax ended with a whimper, as fourth quarter sales declined 9% to $446.6 million. Meanwhile, the core U.S. consumer information solutions (USCIS) sector posted a 9% sales drop, to account for 47% of total revenue. In overseas markets, including Europe, Latin America and Canada, sales declined 17%, but would have grown 2% had it not been for the adverse impact of the stronger dollar. However, tight cost controls, lower interest expenses and share buybacks helped boost diluted earnings per share by 1 cent to 50 cents for the quarter. (Find out what these company programs mean for stockholders in A Breakdown of Stock Buybacks and How Buybacks Warp the Price-to-Book Ratio.)

Full-year results were not nearly as dire. Core USCIS sales dropped 8% to $890.8 million, but international sales increased 7%. Meanwhile, TALX, which provides payroll and human resources automation services and competes with the likes of Automatic Data Processing (Nasdaq:ADP) and Paychex (Nasdaq:PAYX), grew 70% to $305.1 million overall. Acquired in mid-2007, TALX boosted year-over-year figures due to a full year of revenue in 2008, which resulted in total sales growth of 5%, to $1.9 billion, as a lower tax rate helped offset higher interest expense. A 7% increase in operating expenses kept diluted earnings growth positive at 3% to $2.09 per share. Further, the profit margin was about 14%.

Equifax maintained steady generation of operating cash flow at $444.7 million and slightly shrunk capital expenditure to $110.5 million, which put free cash flow (FCF) at approximately $334.2 million, or $2.56 per share. Another important metric closely tracked by value investors is return on invested capital, which came in at a decent 15%.

Bottom Line
Despite a challenging global economic environment, Equifax has managed to keep sales steady and to remain soundly profitable. Additionally, its valuation, as judged by a price-to-free cash flow multiple of just under 10, is quite low. Its rivals FICO (NYSE:FIC) and Dun & Bradstreet (NYSE:DNB) also are experiencing stability, profitability and maturity. While upside may be limited once the business cycle improves, important downside protection currently is in place in today's uncertain market.

Plus, there is potential for multiple expansion once investors warm to the stock again. As a result, Equifax deserves a high score in terms of investment appeal. (When a firm's share price is low and free cash flow is on the rise, odds are good that earnings and share value soon will rise. Learn more in Free Cash Flow: Free, But Not Always Easy.)

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