In a report published Monday, Barclays analyst Manav Patnaik initiated coverage of TransUnion TRU with an Equal-Weight rating and price target of $26. Although the analyst appreciate's the company's business model and leadership team, he prefers the stocks of Equifax, Inc. EFX, Fair Isaac Corporation FICO and Experian plc EXPN.
Patnaik explained that the reason he preferred the other stock was that "TRU is the least diversified of the credit bureaus or the most macro sensitive - while potentially a positive in this earlier stage of the credit cycle, is a notable concern longer term."
In addition, the valuation limits the potential was large M&A deals as well as share buybacks.
"We are also less confident in the sustainability of its direct-to-consumer segment's strong double-digit growth, given the competitive landscape, ever-changing market dynamics," the Barclays report said.
The analyst believes the "tech-led" turnaround of the company, which only started in 2013, under private equity, would take longer than earlier expected to bear results. In fact, both Equifax and Experian took about 5-7 years to achieve their turnaround.
Also, given that the stock trades at a premium to Equifax, which the analyst believes is the best-in-class, there appears to be a mere 5 percent upside to TransUnion's share price.
"Each credit bureau has been successful in its own right, but ultimately, for us, they are companies with exposure to macro themes, where today's improving GDP growth and early stages of the consumer credit cycle are positives," Patnaik added.
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