Investing.com -- S&P Global Ratings has revised its outlook for Equifax Inc (NYSE: EFX ). from negative to stable, affirming the company’s ’BBB’ ratings. This decision is based on the company’s significant improvement in credit metrics during 2024, with leverage falling to 3.2x due to an approximately $700 million debt paydown, 8% revenue growth, and a 200 basis point expansion in S&P Global Ratings-adjusted EBITDA margin.
Despite anticipated challenges in the mortgage market and hiring sector in 2025, Equifax is expected to further reduce its leverage to around 3.0x by the end of the year. The company’s higher-margin Workforce Solutions (EWS) segment is projected to continue its 5% growth rate in 2025, matching its growth in 2024. This is mainly due to the increased sourced records, leading to further penetration of the verifications market.
Equifax’s cloud technology transformation is substantially complete, which is expected to accelerate the rollout of new products. The stable outlook reflects the anticipation that ongoing revenue growth and earnings expansion will enable Equifax to maintain leverage below 3x after 2025.
The EWS segment is expected to continue to be a consistent growth catalyst for Equifax. The expansion of The Work Number (TWN) dataset, which now covers about 75% of all U.S. nonfarm payroll, increases the depth of records, adding more value for customers. EWS revenues in 2024 were up 5%, with nonmortgage EWS revenues up 7.9%. The company’s EBITDA margins for this segment were reported at 51.8% for 2024.
Equifax has been rapidly expanding its dataset by increasing the number of contributors to the database. Between the first quarter of 2021 and the fourth quarter of 2024, the number of contributors increased by 291% to 4.2 million. This rich dataset makes Equifax’s services more attractive in markets that require stronger verification checks, such as government and talent solutions. Equifax currently holds a 12.5% share of the total addressable market for these sectors, estimated to be $10 billion.
Equifax’s mortgage-related business, which accounted for 20% of total revenue in 2024, has been facing headwinds due to rising interest rates since 2022. Despite this, the company managed to outgrow the market with total mortgage revenue increasing 13% in 2024. This growth is expected to continue through 2025, despite a predicted 10% decline in mortgage credit inquiries.
Equifax’s Talent Solutions segment represents about $500 million of annual revenue, with the company holding approximately 10% share of the market. Despite a slower hiring market anticipated in 2025, Equifax is expected to continue to gain share, particularly due to the comprehensive coverage of its TWN database.
Equifax’s capital expenditure (capex)-to-revenue ratio improved in 2024, falling to 9% from 11% in 2023. This ratio is expected to decline further to about 8% in 2025 as the company completes its cloud, data, and technology transformation.
With improved leverage levels, Equifax is expected to increase its dividend for the first time since 2017 and resume share repurchases. The company’s leverage calculation nets its accessible cash, which amounted to $170 million as of Dec. 31, 2024, against its debt. It is expected to generate free cash flow of $900 million-$1 billion annually, which is likely to be deployed toward higher dividends, share repurchases, or bolt-on mergers and acquisitions.
The stable outlook reflects the expectation that ongoing revenue growth and earnings expansion will allow Equifax to sustain leverage below 3x after 2025. Key drivers supporting this outlook include pricing power, new product introductions, and continued strong demand for Equifax’s TWN product as its number of sourced records increases.
S&P Global Ratings could lower its ratings if Equifax’s leverage rises over the 3x area on a sustained basis. This could occur due to further weakening in the mortgage environment, missteps in new product introduction leading to customer attrition, or a shift in its financial policy that prioritizes large acquisitions or shareholder returns over deleveraging to the 3x area.
On the other hand, S&P Global Ratings could raise its ratings on Equifax over the next 12-24 months if the company maintains its momentum of improvement in its competitive position. This would involve broadening its revenue and profit base, maintaining momentum and adoption of new products and solutions, and fully completing its technology transformation and associated cost reduction.
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