TransUnion (TRU) is one of three major credit rating agencies that offer decision making solutions to businesses around the world. Alongside Experian and Equifax, TransUrban operates in what is effectively an oligopolistic industry with strong pricing power.
The firm has developed a powerful database over the past 48 years that would, to say the least, be difficult and costly for any potential new entrant to replicate. To put it into context TransUrban’s database contains 40 petabytes of data with each petabyte being one million gigabytes. TransUrban uses its database to provide financial information on over 1 billion consumers worldwide with clients from the healthcare, insurance and financial industries using its services to generate accurate credit information and models to manage their own exposures.
The credit ratings industry has seen a significant ramping up of growth in recent years as big data has seen significant advances in processing power while end users have seen increasing demand due to new banking regulations, new lending platforms (such as peer to peer lending and pay day loans) as well as increasing growth from emerging markets.
TransUnion reported first quarter results last month with another top and bottom line beat, strongly supporting the growth stock thesis. Revenue rose 12% while earnings rose nearly 400% and adjusted EPS were up 33% to $0.42 smashing consensus forecasts of $0.33. The company also increased guidance with Consolidated revenues now expected to rise 8-9% on a constant currency basis. Adjusted EPS is expected to be between $1.74 and $1.79, an increase of 16 to 19 percent.
However we note TransUnion’s track record of significant top and bottom line beats and also note third party forecasts, by external providers such as International Data Forecasts, that estimate 15% growth through to 2019 for big data and analytics. Consequently we believe the revenue guidance may be conservative with potentially much higher growth.
The stock has risen by a third over the past year and is not cheap with a valuation of 27.80 times adjusted trailing earnings. But with strong growth, secular tailwinds and strong pricing power the stock seems deserving of a large premium.
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Disclosure: The author holds no positions in any of the stocks mentioned nor has any intentions to initiate any in the next 72 hours.