About TransUnion
In this world, there seems to be a rather large infatuation with the concept of three.
There’s the Father, the Son and the Holy Spirit, the Three Stooges, the Three Musketeers, the Big Three, including professional sports superstars such as the likes of the Miami Heat’s former powerhouse squad filled with LeBron James, Dwyane Wade and Chris Bosh and not to harp too much on our favorite sport (basketball), but heck, there’s even a development league called the Big3.
And here’s where it gets slightly less culturally interesting.
Did you know that consumer credit reporting agencies come in threes too?
Sure enough.
There’s the main course today, Chicago, Illinois-headquartered TransUnion, there’s Equifax and you can’t forget about Experian, you know, because of John Cena.
While the major credit bureaus are commonly referenced, let’s briefly iron out what it is exactly a credit bureau does.
Collection is key with this sort of business.
Namely, a company like TransUnion (or TransUnion exactly, as a matter of fact) derives much of its total annual revenues by collecting fees from lenders and/or other types of creditors broadly that are interested in determining whether or not they should lend to someone or some entity or not.
As a likely familiar example, say you’re in the market for some automobile insurance.
The seller of that car insurance is going to more than likely run a credit check on you in helping them determine your monthly premium.
Where did that auto insurance company obtain that information?
Let’s just say there’s about a 33% chance they got it from TransUnion.
For this service, the aforementioned auto insurance provider pays the credit bureau a fee for this information that is initially collected and stored within its system.
Additionally, individuals themselves can pay to get a current snapshot of their personal credit score.
This is a large bulk of TransUnion’s total annual revenue and it’s hardly any different from Equifax and Experian.
Before delving into the company’s numbers, it’s interesting to consider the fact that TransUnion, Equifax and Experian aren’t really all that recession proof as we had initially pondered, as if lending dries up and less and less consumers are looking to make and/or finance purchases, there will probably be less credit report requests and thus less revenue streaming in for a company such as TransUnion.
This is simply something to consider as we enter tonight’s main venue, a stock analysis article on TransUnion with an ultimate personal determination of whether or not this bureau’s stock is worth potentially buying and holding or not.
TransUnion’s stock financials
Trading at a share price of $64.93 with a market capitalization of $12.54 billion, a current price-to-earnings (P/E) ratio of 48.99 all while spitting out an annual dividend of $0.42 to its shareholder base, TransUnion’s stock (NYSE: TRU) doesn’t particularly tickle our fancy at the moment as its shares seem to be trading at a heavy premium as it is generally accepted that a P/E of 20 is the benchmark for fair value and thus implies that anything higher means a stock is likely overvalued and anything lower, undervalued.
Sadly, TransUnion is the former.
Moving onto the current state of the company’s balance sheet, TransUnion’s executive members are in charge of tending to and strategically deploying (hopefully) around $11.6 billion in terms of total assets along with approximately $7.5 billion in terms of total liabilities.
We think it is worth noting that over the last two years this company’s total liabilities have increased by approximately 85% (jumping from $4.7 billion in 2020 to $8.7 billion in 2021), which can likely be attributed to heightened cybersecurity-related expenses, which to us, certainly makes having a little more debt on its books worth it.
Breaches have plagued the industry in recent years, such as the famed incident involving Equifax and if TransUnion is dedicating more and more of its resources to preventing such breaches moving forward, we’re completely fine with that and frankly encourage them to do so and take other similar measures against cybercrime and threats thereof.
As it relates to the company’s income statement, TransUnion’s total annual revenue figures have been as drop-dead consistent as initially hoped for and expected, however, the company did see a recent rise in total revenue between 2021 and 2022, which can probably be best attributed to price hikes due to inflation as well as more people applying for loans as the economy rebounded following the immediate easing of COVID-19.
Between 2018 and 2021, the company’s total annual revenues, on average, stood in the mid-to-high bounds of the $2 billion area code and saw a rise to $3.7 billion in 2022, its latest reported figure on TD Ameritrade’s platform.
All of this was to be expected for the most part, however, we’re thankful that we were a little off regarding how recession sensitive this company is, and while we’re sure it does have its fair share of vulnerability in this regard, it doesn’t seem to be nearly as bad as we had initially projected, according to these numbers.
In terms of the company’s cash flow statement, TransUnion’s net income and total cash from operations figures have been both positive and consistent, which is what we like to see in a company such as this one, even though it isn’t all too unexpected.
TransUnion’s stock fundamentals
Regarding the company’s trailing twelve month (TTM) net profit margin, according to TD Ameritrade’s platform, it’s perched below at 7.29% to the industry’s average of 10.93%.
While this isn’t the worst, it certainly isn’t the best.
In an industry as particularly tight-knit and competitive as the credit reporting agencies’, we were hoping that TransUnion’s TTM net profit margin would’ve been the same as or even slightly better than that of the industry’s average.
Of course, this raises internal questions of why this is the case, where/how can the company nip away at the competition’s margin(s) and ultimately, what is TransUnion’s executive team doing to improve itself on this front?
Lastly, the company’s TTM returns on assets and investment(s) are both plainly disappointing as well.
Specifically, also according to TD Ameritrade’s platform, TransUnion’s TTM returns on assets and investment(s) sit at 2.29% and 2.53% to the industry’s respective averages of 5.62% and 15.58%.
Like its TTM net profit margin, this is yet another red flag on the play.
Should you buy TransUnion stock?
While this company’s business model isn’t as vulnerable to broad recessionary pressures as we had initially thought, putting all of the pieces together doesn’t make us want to jump at the opportunity of buying this company’s stock at this current juncture.
Its shares are undoubtedly overvalued (on a price-to-earnings basis), its other core financials are good, not great, and as for pertinent ratios, its TTM net profit margin, returns on assets and investment(s) are disappointing to say the least.
Therefore, while this company does serve a very important role in the economy and society at large, its stock (NYSE: TRU) just isn’t for us right now.
We give TransUnion’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.