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TransUnion (TRU)

TransUnion (TRU)
Sean Tepper Sean Tepper
Stock reviews
March 23, 2022

Is TransUnion stock a good buy?

Now let’s take a look at the financials to get us closer to determining if TransUnion stock is a good buy

TransUnion is a consumer credit reporting agency that has collected data on over 1 billion consumers in over 30 countries including the US, Chile, Colombia, Dominican Republic, Guatemala, Kenya, Mexico, Philippines, India, Hong Kong, South Africa, and Canada. The company was founded in 1968 and is based in Chicago, IL.

Table of Contents

Tykr Rating

  • Summary: On Sale
  • Score:  19/20
  • MOS:  80%
  • Share Price:  $102
  • Sticker Price:  $516

TransUnion Company History

  • TransUnion was founded in 1968 as a holding company for the railroad leasing organization, Union Tank Car Company.
  • In 1969, TransUnion acquired the Credit Bureau of Cook Country, which possessed and maintained 3.6 million credit accounts. 
  •  A Chicago-based holding company, The Marmon Group, acquired TransUnion for approximately $688M In 1981.
  •  Goldman Sachs Capital Partners and Advent International acquired TransUnion In 2010, from Madison Dearborn Partners.
  •  TransUnion acquired eScan Data Systems in  2013, to provide post-service eligibility determination support to hospitals and healthcare systems.
  • TLO LLC, a company that leverages data in support of its investigative and risk management tools was acquired by TransUnion  In 2013. 
  • In 2014, TransUnion found that reporting rental payments information to credit bureaus can positively affect credit scores. As a result, TransUnion initiated a service called ResidentCredit, making it easy for property owners to report data about their tenants on a monthly basis. These reports include the amount each tenant pays, the timeliness of their last payment, and any remaining balance the tenant currently owes.
  • TransUnion acquired Hank Asher’s data company, TLO In 2014.
  • TransUnion then went public In 2015.
  • In the year 2015, TransUnion acquired Trustev, a digital verification company specializing in online fraud for $21M.
  • In 2017, TransUnion acquired FactorTrust, a consumer reporting agency specializing in alternative credit data.
  • TransUnion acquired UK-based CallCredit Information Group for $1.4B in the year 2018, 
  • In 2021, TransUnion acquired Neustar.

TransUnion Business Model

How does TransUnion make money?

The three major credit bureaus in the US include Equifax, Experian, and TransUnion.

These companies generate revenue through the following channels.

  1. Credit Services – TransUnion receives a request from a lender for an individual consumer credit report. For example, let’s say a couple just got married and are buying their first home. The mortgage lender or bank needs to pull a credit port. In this case, they pay a fee to TransUnion to see the credit report of each person buying the home.
  2. Decision Analytics – TransUnion can provide lenders with more detailed analytics that show spending habits and how individuals handle debt. These reports come at a premium cost.
  3. Marketing Support – Lenders pay TransUnion for leads. For example, let’s say a credit card company is offering a new credit card and it wants to target people with high credit scores. In this case, the lender will pay TransUnion for a certain number of leads.
  4. Consumer Services – TransUnion offers products directly to consumers including credit monitoring, identity theft protection, and fraud prevention.

Although TransUnion is most popular in the US, the following products are growing fast around the world.

  • CreditVision – CreditVision allows you to harness the power of vast amounts of data to gain a full view of consumers. That enables you to talk to the right prospects, make better lending decisions and effectively manage your portfolio of risk.
  • TruValidate – A suite of Identity Decisions and Fraud Analytics solutions that gives you a more complete view of online and offline consumer identities and suspected fraud. It delivers accurate insights so you can quickly and confidently move forward with good customers while keeping fraudsters at bay and back-office inefficiencies to a minimum.
  • DecisionEdge – A powerful, flexible suite of data, analytics, and decision solutions that enables businesses to turn insights into smarter, more targeted, actionable decisions. They enable you to deploy and optimize smart risk, create viable marketing strategies, and expand relationships with confidence.
  • Prama – A portfolio of groundbreaking, versatile data and analytics capabilities that empower customers to easily discover, build and act on insights with the touch of a button. By identifying market trends, analyzing the most relevant segments and making appropriate decisions and adjustments, our clients are able to better position their organization and stay ahead of the competition.

TransUnion News

This article from zacks.com states that TransUnion is establishing a strategic partnership with Funnel Leasing, a company that helps renters with a smooth application experience, and landlords with a better screening process. The partnership is encouraging since the multifamily industry has become titled toward digital, contactless process amid the pandemic, which has increased the need to improve the user experience when it comes to digital leasing processes.

This article from pymnts.com states that TransUnion launched a BNPL (Buy Now, Pay Later) tool called Sezzle. Sezzle is a hot new BNPL tool that competes with PayPal and Square. What TransUnion does with Sezzle is monitor the pay-back history of consumers. In other words, if a consumer buys a product and makes the payments on time within the payback period, their credit score will be positively affected. 

This article from pymnts.com states that TransUnion is planning a $515M acquisition of Verisk Financial Services which offers competitive studies, predictive analytics, models and advisory services for financial institutions, payment providers, and retailers around the world. This acquisition will further expand TransUnion’s B2B revenue channels.

This article from foxbusiness.com states that 20 million mortgage originations could occur in 2022, up from 14 million in 2020. The article also states that sub-prime (FICO score less than 660) originations have increased by 47% in 2021. As quoted “The economy is normalizing and continues to expand, and those signs of renewed strength are encouraging lenders to not just focus on the least risky consumers, but to provide greater access to those persons that may be viewed as higher credit risk.” Overall, as lenders request more credit reports, TransUnion will see an increase in revenue.

This article from zacks.com states that TransUnion will be working with UMortgage, a US mortgage lender, and FinLocker, a financial fitness and mortgage readiness app. The partnership will allow will consumers to track their credit health thanks to TransUnion. These are two brilliant channel partnerships for generating leveraged revenue.

TransUnion Competition

TransUnion (TRU)

  • Summary:  On Sale
  • Score:  19/20
  • MOS:  80%
  • Share Price:  $102
  • Sticker Price:  $516

Experian (EXPN.L)

  • Summary:  On Sale
  • Score:  12/20
  • MOS:  80%
  • Share Price: GBX3019 (3,019 Pence Sterling is equal to $39)
  • Sticker Price: GBX15175 (15,175 Pence Sterling is equal to $198)

Equifax (EFX)

  • Summary:  Watch
  • Score:  16/20
  • MOS:  46%
  • Share Price: $239
  • Sticker Price: $444

Fair Isaac Corporation (FICO)

  • Summary:  On Sale
  • Score:  10/20
  • MOS:  80%
  • Share Price: $484
  • Sticker Price: $2,436

Difference between TransUnion, Experian, Equifax, and FICO 

When it comes to credit scores, Experian, TransUnion, and Equifax are the main players. Your score at each one of these bureaus is completely independent of your score from others. For example, an apartment manager who checks your credit may only look at TransUnion while a credit card company might only look at Experian.

FICO was developed as an alternative to these bureaus. FICO is becoming more popular because it paints a more holistic picture of the potential borrower. For example, FICO looks at a longer financial history, allows for mitigation due to extenuating medical circumstances, and is generally more flexible.

Score breakdown

  • Experian – Experian has a range of scores from 360 to 840. It’s considered to be one of the more balanced bureaus since it assigns weight fairly evenly across the standard risk categories.
  • TransUnion – TransUnion ranges from a low of 300 to a high of 850. This is one of the least forgiving bureaus because much more weight is assigned to your payment history and the average age of your credit accounts. It’s also the least friendly to those just starting out building credit.
  • Equifax – Equifax scores range from 280 to 850. Similar to Experian, these scores are fairly balanced. However, the bureau is slightly less forgiving to those who apply for many credit accounts as well as new borrowers.
  • FICO – FICO scoring is more holistic, which allows more Americans to qualify for loans and mortgages than most traditional bureaus’ scores. Scores range from 300 to 850. 

How to improve your credit score

According to Credit Sesame, there are five categories evaluated by the three bureaus which include payment history, credit utilization, credit age, diversity of credit, and the number of “hard” inquiries. In general, you should try to keep your credit utilization below 30% of what’s available to you. This demonstrates that you have self-restraint, and it’s a good sign to lenders. Your payment history is assigned the most weight by every bureau, as well as FICO, because it’s direct proof that you either meet or don’t meet your repayment obligations. Diversity of credit means that you’ve had various types of credit, such as revolving lines of credit, credit cards, mortgages, car loans, and more. This is usually assigned less weight. “Credit age,” unfortunately, can only be increased over time as you build a positive credit history.

How is FICO different?

If you’re looking to get a good FICO score, there are some unique factors to take into account. FICO breaks down the five categories with weights. The scoring model considers payment history (35%), amounts owed (30%), newly formed accounts (10%), credit history and age (15%), and diversity of credit (10%). This transparent model makes it easy to improve your FICO score. Essentially, once you get your first credit card, simply ensure you make the minimum payment each and every month. Also, make sure you stick to the 30% utilization rule, already covers 65% of your score. The other 35% is obtained simply by going through life and using different forms of loans and receiving varying amounts of credit. Unlike the traditional bureaus, FICO scores are free to check for borrowers. That means you can always see your current FICO score to understand if you’re on the right track. Although there’s no guarantee every lender will use FICO, more lenders are beginning to adopt it.

TransUnion 4Ms

MOS (Margin of Safety): TransUnion’s financials are nearly as good as you can get. A score of 19/20 and MOS of 80% shows this company is operating very well.

Meaning: Credit monitoring is not a glamorous industry but it’s a necessity. If banks want to lend money to consumers, they need to pull credit reports. This is a fantastic place to be for TransUnion. In other words, TransUnion is generating the majority of its revenue through channel partners that need it’s products and services. We’ll touch on the moat in a moment but with this business model, once they secure a relationship with a channel partner or customer, the chances of leaving are slim-to-none. The reason is, most lenders are pulling credit reports from the “big 3” (Equifax, Experian, and TransUnion).

Moat: Lenders typically work with all three credit bureaus (Equifax, Experian, and TransUnion) as well as FICO. Although they may be classified as competition, they aren’t taking away substantial market share from each other. In fact, if a lender is working with one, they are most likely working with the others. It’s important to point out that FICO works with the top 100 banks in the world. At this time, it doesn’t look like FICO will replace TransUnion as they can currently grow in parallel. 

Management: Chris Cartwright has served as President & CEO since May of 2019. In his early career, Cartwright worked as Senior Vice President, Strategic Planning and Operations for Christie’s Inc. Thereafter he worked at Wolters Kluwer, a global information services and workflow solutions company, for 14 years. He then moved onto Decision Insight Information Group, a portfolio of independent businesses providing real property information, software, and services to insurance, finance, legal, and real estate professionals in the US, Canada, and Europe. He joined TransUnion in 2013 where he served as Executive Vice President, US Information Services, where he helped drive TransUnion’s transformation into a global company.

TransUnion Financials

How does TransUnion make money?

Now let’s take a look at the financials to get us closer to determining if TransUnion stock is a good buy. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

  • 2018:  $2.3B
  • 2019:  $2.6B
  • 2020:  $2.7B
  • 2021:  $2.9B
  • Revenue has consistently increased year-over-year which is a great sign.

Net Income (Found on the Income Statement)

  • 2018:  $276M
  • 2019:  $346M
  • 2020:  $355M
  • 2021:  $1.3B
  • Net Income has substantially increased in 2021. This is a great sign.

EPS (Found on the Income Statement)

  • 2018:  1.50
  • 2019:  1.85
  • 2020:  1.88
  • 2021:  7.25
  • EPS has also substantially increased in 2021. Another great sign.

Free Cash Flow (Found on the Cash Flow Statement)

  • 2018:  $375M
  • 2019:  $578M
  • 2020:  $573M
  • 2021:  $584M
  • Free Cash Flow has slightly increased in 2021.

Total Assets (Found on the Balance Sheet)

  • 2018:  $7B
  • 2019:  $7.1B
  • 2020:  $7.3B
  • 2021:  $12.6B
  • Total Assets have substantially increased in 2021.

Total Liabilities (Found on the Balance Sheet)

  • 2018:  $5B
  • 2019:  $4.7B
  • 2020:  $4.6B
  • 2021:  $8.6B
  • The Total Liabilities have increased in 2021. Ideally, we want to see liabilities decrease. The reason for this increase may be due to acquisitions which increase office rent/mortgages and employee payroll.

Total Debt (Found on the Balance Sheet)

  • 2018:  $4B
  • 2019:  $3.6B
  • 2020:  $3.5B
  • 2021:  $6.5B
  • The debt has increased which is most likely related to the increase in offices and payroll.

Total Equity (Found on the Balance Sheet)

  • 2018:  $1.8B
  • 2019:  $2.2B
  • 2020:  $2.5B
  • 2021:  $3.9B
  • The Total Equity has increased which is a great sign.

Is TransUnion stock a good buy?

The 4 M’s on this business look good. Regarding the MOS, the financials are near perfect. Regarding the Moat, this business is a necessity, especially in the US. However, it is great to see the global expansion as well. Regarding the Moat, we do understand there are other companies in this space including Equifax, Experian, and FICO but right now they can all thrive. Regarding the management, the key factor that jumps out to me is how he helped TransUnion expand as a global company. This move alone will allow TransUnion to continue to increase revenue.

Overall, TransUnion has seen the share price increase 175% over 5 years (22% annualized). If you’re looking for a steady winner to help diversify your portfolio, this stock may be worth a look.

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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

If you found this stock review interesting, you may also like this review on Palantir.

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