TransUnion Earnings: Soft September Weighs on Outlook, but We Believe Market Is Overreacting

Key Morningstar Metrics for TransUnion

• Fair Value Estimate: $101.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of TransUnion’s Earnings

TransUnion TRU reported disappointing third-quarter results and a disappointing fourth-quarter outlook. Third-quarter revenue, adjusted EBITDA, and adjusted earnings per share were 2%, 3%, and 4% below their respective FactSet consensus estimates. TransUnion saw a really weak September, and the firm meaningfully took down its full-year outlook as a result. Making matters worse, it took a write-down of goodwill from its U.K. business, Callcredit, amid a challenging economic and regulatory environment in that country.

In our view, a key question is whether the firm is taking a big bath and thus resetting expectations, which sets up the stock favorably, or if a worsening macroeconomic environment with student loan payments resuming and interest rates spiking will result in further revenue misses. We take the former view. We expect to reduce our fair value estimate by about 10%, but we view the stock (trading at a five-year low) as cheap and offering a positive risk/reward profile.

Revenue of $969 million missed the FactSet consensus estimate of $983 million and the firm’s outlook of $973 million-$988 million. Likewise, adjusted EBITDA of $356 million missed the FactSet consensus estimate of $367 million and the firm’s outlook of $361 million-$370 million. Incremental settlement charges, which are included in adjusted results, negatively affected adjusted EBITDA by $7 million.