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In separate reports published Tuesday, analysts at both Stifel and Deutsche Bank initiated coverage of TransUnion (NYSE: TRU) with Buy ratings.
Stifel: Strong Top And Bottom-Line Growth
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Shlomo Rosenbaum of Stifel initiated coverage of TransUnion at Buy with a $29 price target as the company is a "top-line growth and margin expansion story."
Rosenbaum noted that top-line growth will come from an improving end market (i.e., declining unemployment, improved consumer confidence), enhanced internal initiatives and M&A activity. On the other hand, margin expansion will come from general operating leverage and benefits from the completion of a "significant" technology upgrade.
Rosenbaum also noted that the company is targeting 6 to 7 percent organic revenue growth and around 10 percent adjusted EBITDA growth in the near term. Looking a bit further, recent deleveraging through its IPO proceeds could result in upper-20 percent adjusted earnings per share growth in 2016.
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Deutsche Bank: ‘Right Exposures' Versus Peers
Paul Ginocchio of Deutsche Bank initiated coverage at Buy with a similar $29 price target as the company is the most levered to the U.S. consumer versus its peers.
Ginocchio said that the "overall health" of the U.S consumer serves as a positive for TransUnion given its 82 percent revenue exposure in the US. The company is also favorably viewed versus its peers given its 8 percent U.S. mortgage exposure, versus Equifax Inc. (NYSE: EFX)'s 15 percent exposure. In addition, TransUnion has a 20 percent exposure to interactive (consumer credit monitoring), which is largely a subscription revenue, versus Equifax's 12 percent.
Ginocchio also pointed out that TransUnion reported organic revenue growth of 16 percent in the second quarter, exceeding Equifax's 13 percent growth. Specifically, the company's interactive segment accelerated to 31 percent organic growth in the quarter. In addition, USIS (credit reports and analytics) has shown double-digit growth rates for the last five quarters, due to its CreditVision product and unique dataset TLO.
What Risks Exists?
Despite a bullish outlook from both analysts, Rosenbaum cautioned that TransUnion lacks a "substantial history" executing as a public company and faces potential M&A integration risk. In addition, investors may migrate toward valuing the company with free cash flow yield metrics or P/E multiples which may imply less upside or some downside.
Ginocchio noted a different set of risks, such as rising rates hurting USIS growth, more competition in the indirect consumer credit monitoring channel, economic volatility in key emerging markets and investor perception that view acquisitions as "expensive."
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.