Equifax is on a tear, to the downside. Let’s see what happened to the stock in the last decline from an all-time high and see if there is any precedence for what we can expect going forward.
2002-2009
In the period from 2002 to 2009, the price of Equifax (EFX) increased +158% to a high of $41.22. the decline that followed brought the stock to $17.80.
Equifax fell to the conservative downside target ($34.18) and the mid range downside target ($23.96). At the time, Equifax had an extreme downside target of ($13.74) but somehow didn’t manage to decline to that level, in spite of the fact that the housing crisis was co-opted by credit bureaus changing their standards which materially affected FICO scores.
“…the higher the credit score, the larger the increase in serious delinquency rates between 2005, 2006 and 2007. For example, for borrowers with the lowest credit scores (FICO scores between 500 and 600), the serious delinquency rate in 2007 was twice as large as in 2005—an increase of nearly 100 percent over the two years. For borrowers with the highest credit scores (FICO scores above 700), the serious delinquency rate in 2007 was almost four times as large as in 2005—an increase of nearly 300 percent. In addition, the serious delinquency rate in 2007 for the best-FICO group was almost the same as the rate in 2005 for the worst-FICO group.(Demyanyk, Yuliya. ‘Did Credit Scores Predict the Subprime Crisis?’ . Federal Reserve Bank of St. Louis. October 2008. link.).”
Bending of rules towards what was considered a prime rated credit score contributed significantly to lenders justifying the approval of home loans which later failed. With all this in mind, Equifax and their competitors should have fallen much more than they did. In fact, under normal conditions, at least one of the leading credit bureaus should have gone out of business.
Now, Equifax has declined based on a recent hack of their data systems. The resultant decline in the stock price seems natural. However, given the resilience of the stock price after the housing crisis, we have to default to the view that the company won’t go out of business but will be severely impacted in the short-term.