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Key Takeaways for TransUnion Stock:
- TransUnion remains a wide-moat player in a mature industry with high barriers to entry, and the stock is undervalued.
- The growing importance of credit is evident from TransUnion’s entrance into verticals like insurance, tenant screening and collections.
- Diversification into other credit-related businesses softens the impact of a potential domestic downturn on TransUnion, and the company is expanding into other, evergreen markets like India.
Andrew Willis: How important does credit become in a downturn? With the talk of high interest rates potentially pushing economies into recessions, creditors are likely to lean on their due diligence a little more when providing loans. And there are only so many credit bureaus….
Companies like TransUnion (TRU), with their wide moats and trading at a discount, make a compelling case for investment in uncertain times. These are data-intensive businesses and the barriers to entry are high given it’d be incredibly difficult to replicate similar databases with millions of customers. But given the decades of development to get here, it also makes for a mature industry with limited growth prospects – that is until we get to leveraging the data that TransUnion has collected.
From insurance to tenant screening for rentals, and yes even collections, TransUnion stock now represents more of an integrated play on the credit game, with emerging verticals now making up 32% of the firm's revenue in 2020, up from 21% in 2009, according to equity analyst Rajiv Bhatia. The company has been outperforming its larger peers in terms of growth since its IPO, and we feel like the acquisitions made along the way to achieving this have made sense and not weakened the firm’s wide moat.
TransUnion’s Growing Through Integration and Emerging Markets
The application of TransUnion’s might to new avenues of growth also extends internationally, where we see the most intriguing opportunity in India. With a large population and evergreen market, the company’s early entry has given it a commanding lead in the country.
Looking ahead, there is the possibility that high rates mean lower demand for loans and fewer applications and that a global recession may affect TransUnion’s core credit reporting business, but its new segments help soften those macro sensitivities. Besides, when rates come down, we’ll probably see borrowers come back.
For Morningstar, I’m Andrew Willis.
TransUnion Bulls Say
- TransUnion’s efforts to modernize its data infrastructure not only lowered costs but could improve its nimbleness in generating new revenue. In terms of growth, TransUnion has clearly outperformed its larger peers since its IPO.
subscriber base give the company an edge when deciding which content to acquire in future years. - Although the ramp-up could take many years, TransUnion has a leading position in India, the one emerging market that we believe has long-term revenue potential in line with the U.S.
- TransUnion’s growth of its emerging verticals segment (insurance, public sector, and so on) means less sensitivity to the macro environment versus the Great Recession.
TransUnion Bears Say
- Growth is primarily driven by volume, as pricing for core credit reports has typically been flat.
- While TransUnion was not directly involved, the breach at Equifax could lead to a more restrictive regulatory environment for all players.
- Management’s predilection for M&A could ultimately dilute the wide moat surrounding the core business.
Editor's Note: All images are courtesy of Unsplash.com and AP Images.
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