TransUnion: Valuation Remains Uncertain, Shares Fall To Support (NYSE:TRU)

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A weakening consumer environment and rising interest rates is not a strong backdrop for the major credit reporting agencies. Equifax (EFX), Experian (OTCQX:EXPGY), and TransUnion (NYSE:TRU) are all down sharply from their 2021 highs. The worst-performing of the trio reported a decent quarter this week, but many question marks remain.

Credit Crunch

Credit Crunch

Stockcharts.com

According to Bank of America Global Research, TransUnion provides credit and risk management solutions to businesses and consumers. The company is the third-largest global credit bureau, serving over 65,000 clients in over 30 countries. Products and services include consumer credit reports, risk scores, analytical services to manage risk, and decisioning capabilities to deliver insight across the consumer credit lifecycle.

The Illinois-based $11.1 billion market cap Professional Services industry company within the Industrials sector trades at a high 43.4 trailing 12-month GAAP price-to-earnings ratio and pays a small 0.7% dividend yield, according to The Wall Street Journal.

TransUnion beat its Q3 earnings estimate of $0.91 by two cents earlier this week, but shares have not rebounded to a high degree. Earlier this month, the credit reporting bureau issued a warning on signals of rising credit card delinquencies. Nevertheless, TRU hiked its dividend by 10.5% back in August.

The company has a strong management team and solid long-run prospects. Near-term risks include a weak housing market and lending checks that could be on the downhill should the credit cycle continue down its negative path. The good news is that TransUnion’s organic growth is favorable. Much depends on how the consumer fares through this tough stretch. Downside risks include issues related to incorporating recent acquisitions, less commercial use of TRU’s new offerings, and unfavorable regulatory outcomes.

On valuation, analysts at BofA see earnings falling modestly this year and next after a very strong 2021. Solid EPS growth is expected in 2024, though. The Bloomberg consensus per-share profit outlook is slightly more sanguine than BofA’s. Dividends should be steady – while BofA notes a dip in 2023, I do not expect a cut.

The company’s operating P/E is near the market’s ratio while TRU’s GAAP multiple is exceedingly high. The company’s EV/EBITDA multiple does not scream cheap, nor does its free cash flow yield. Overall, I am not enthusiastic about TransUnion’s valuation given the current macro environment and interest rate regime.

TransUnion: Earnings, Valuation, Free Cash Flow Forecasts

TransUnion: Earnings, Valuation, Free Cash Flow Forecasts

BofA Global Research

Looking ahead, corporate event data provided by Wall Street Horizon show a light calendar ahead for TransUnion now that its Q3 earnings report has been released. I do not see significant volatility catalysts over the coming weeks.

Corporate Event Calendar

Corporate Event Calendar

Wall Street Horizon

The Technical Take

The good news for the TRU bulls is that shares have been more than cut in half from their Q3 2021 peak. Clearly, investors have discounted a much weaker fundamental backdrop. Moreover, the stock is now back to support in the mid-$50s. Notice how shares found their footing at this price range in early 2018, late 2018, and March 2020. TRU has indeed bounced modestly with a much-improving RSI. I think being long here with a stop under $52 makes technical sense.

On the upside, there’s resistance in the low $80s – the early 2021 and Q1 2022 lows, along with significant volume-by-price starting there (bearish). The falling 200-day moving average indicates a long-term downtrend is in place, so that is another bearish factor.

TRU: Stock Sliced In Half, Falls To Support

TRU: Stock Sliced In Half, Falls To Support

Stockcharts.com

The Bottom Line

I like TRU for a trade, not an investment. The stock has been slaughtered but shares still look somewhat pricey given the macro backdrop. Still, shares are back at key support, so I expect a bounce over the coming months now that volatility catalysts have passed.

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