ModernGraham Annual Valuation Of Equifax Inc. - 2014

| About: Equifax Inc. (EFX)
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Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Equifax fares in the ModernGraham valuation model.

EFX Chart

EFX data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $69.13
MG Value $27.60
MG Opinion Overvalued
Value Based on 3% Growth $32.37
Value Based on 0% Growth $18.98
Market Implied Growth Rate 11.23%
Net Current Asset Value (NCAV) -$13.05
PEmg 30.96
Current Ratio 0.98
PB Ratio 3.66

Balance Sheet - 12/31/2013

Current Assets $648,400,000
Current Liabilities $662,500,000
Total Debt $1,145,500,000
Total Assets $4,539,900,000
Intangible Assets $3,463,800,000
Total Liabilities $2,239,200,000
Outstanding Shares 121,900,000

Earnings Per Share

2013 $2.69
2012 $2.22
2011 $1.87
2010 $1.86
2009 $1.83
2008 $2.09
2007 $2.02
2006 $2.12
2005 $1.86
2004 $1.78

Earnings Per Share - ModernGraham

2013 $2.23
2012 $1.99
2011 $1.90
2010 $1.94
2009 $1.98
2008 $2.03

Dividend History

EFX Dividend Chart

EFX Dividend data by YCharts


Equifax Inc. does not qualify for either the Defensive Investor or the Enterprising Investor. For the Defensive Investor, the company's current ratio is too low, it has not demonstrated sufficient earnings growth over the ten year period, and its PEmg and PB ratios are too high. For the Enterprising Investor, the company holds too much debt relative to its current assets. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should explore other opportunities through a review of 5 Outstanding Dow Components and 5 Low PEmg Companies for the Defensive Investor.

From a valuation side of things, the company appears to be overvalued after only growing its EPSmg (normalized earnings) from $1.98 in 2009 to $2.23 in 2013. This low level of demonstrated growth does not support the market's implied estimate of 11.23% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls below a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Equifax Inc.? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in Equifax Inc. (NYSE:EFX) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.