Proprietary financial database provider Equifax Inc. (EFX) recently conducted an extensive study on the bankruptcy trends of 24 million U.S. small businesses for the year 2010. The data gathered by the company reveals that small business bankruptcy rates have dropped in many areas including different coastal region, with other western regions.
While the rate of bankruptcy has decelerated in many U.S. regions, the small business economic turmoil in California stayed high throughout 2010, accounting for nearly 20% of the country’s business failures. The company believes that the analysis suggests that bankruptcy trends are slowly easing in favor of an environment that is more conducive to cultivating small business growth. We think this data will be accessed by credit research firms and financial institutions in order to gauge the health of the industry.
Apart from the above mentioned services, the company has introduced several other products to provide additional services to the end customer. The company has introduced a variety of income, spending, credit and wealth solutions that help credit issuers to keep track of the customer lifecycle.
The solutions take a macro view of consumers’ repayment ability. It is divided into four major sub-modules. The first module is Ability to Pay and Capacity Scores, which basically ranks households on the basis of their capability to repay financial obligations. In addition, it also gauges consumers’ ability to take additional debt.
The second module is Income and Employment Verification, which helps to track the income details of different consumers.
The third is Consumers’ Current Monthly Obligations module, which contains updated credit profiles of more than 200 million consumers.
The fourth segment is Discretionary Spending Capacity and Disposable Income, which estimates the household discretionary spending pattern.
Recently, the company has shifted its focus to small business customers, having launched a service for them. The service is intended to help them monitor and strengthen their own credit performance and the credit health of companies they’re doing business with. We expect the initiative to open up a new source of revenue for the company.
We believe Equifax is well positioned to benefit from its leadership in important markets, as well as the heightened consumer concern regarding identity theft and strength in international markets. However the company also faces competition from the Automatic Data Processing Inc. (ADP). With the sale of its direct marketing division, the company is now focusing more on its main business. The company is also in an expansion mode with product launches and international growth. However, given the strong correlation to consumer and financial markets, as well as the company’s U.S. exposure, improvement in results will at best be gradual, in pace with the country’s economic recovery.
The company currently has a Zacks Rank #4 (short-term Sell recommendation).
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