EFX or GDOT: The Financial Transaction Services Stock to Buy
Despite a faster share price rally so far this year, Equifax (EFX) has a lower valuation compared with Green Dot (GDOT).
The financial services industry has transformed significantly in recent years. With digitalization taking center stage, technology is playing a major role. Digitalization of banking and payment services has made it easier for people to conduct transactions.
Meanwhile, coronavirus-led lockdowns have increased people’s dependency on online platforms and online transaction methods, which has turned out to be a positive factor for the industry. With the market adopting a quantitative approach to save time, reduce operating expenses and increase work efficiency, companies in this industry should benefit. The Zacks Financial Transaction Services industry currently carries a Zacks Industry Rank #110, which places it in the top 43% of more than 250 Zacks industries and indicates solid near-term growth prospects.
Given this encouraging backdrop, it is not a bad idea to undertake a comparative analysis of two financial transaction services industry stocks — Equifax. EFX and Green Dot Corporation GDOT. Both stocks are part of the broader Zacks Business Services sector (one of the 16 Zacks sectors). While market capitalization of Equifax is $32.51 billion, that of Green Dot is $2.77 billion.
As both stocks carry a Zacks Rank #2 (Buy), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Equifax clearly scores over Green Dot in terms of price performance. So far this year, shares of Equifax have gained 38.5%, against 10.3% decline of the industry it belongs to. Green Dot has lost 6.9% in the said time frame.
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Earnings growth and stock price gains often serve as indicators of a company’s prospects.
Equifax’s current-year earnings are projected to grow 6.9% while those of Green Dot are expected to grow 6.2%. Looking at 2022, Equifax’s earnings are projected to grow 21.1% while those of Green Dot are expected to increase 20.5%.
Thus, Equifax has an edge over Green Dot in terms of yearly projected earnings growth.
Earnings Surprise History
Earnings surprise history helps investors to get an idea of the company’s performance in the previous quarters.
Equifax surpassed the Zacks Consensus Estimate in each of the previous four quarters while Green Dot surpassed the same in three of the previous four quarters.
However, Green Dot enjoys an edge over Equifax by delivering a higher average earnings surprise of 64.5% compared with the latter’s 17.7%.
Earnings Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Over the past 90 days, the Zacks Consensus Estimate for Equifax’s current-year earnings has risen 6.4% versus an increase of 5.2% for Green Dot. For 2022, Equifax’s earnings estimates have improved 6.6% compared with an increase of 2.7% for Green Dot.
Based on yearly earnings estimate revisions in the past 90 days, Equifax is placed better than Green Dot.
The price to earnings ratio (P/E) metric is used to measure a company's value relative to its earnings. In general, a lower number or multiple is considered better than a higher one.
The trailing 12-month price-to-earnings (P/E - TTM) multiple for Equifax and Green Dot is 34.2 and 40.9, respectively, while that of the industry is 31.9. Although both companies compare unfavorably with the industry, Equifax has an edge over Green Dot with a lower P/E - TTM value.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
Equifax and Green Dot have a TTM net margin of 15.5% and 1.8%, respectively. Though both stocks compare unfavorably with the industry’s figure of 34.8%, Equifax has a lead over Green Dot.
Our comparative analysis shows that Equifax scores over Green Dot in terms of price performance, earnings estimate revisions, yearly earnings growth projection and net margin. However, Green Dot enjoys an advantage in terms of earnings surprise history.
Despite a faster share price rally so far this year, Equifax has a lower valuation compared with Green Dot.
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Equifax, Inc. (EFX): Free Stock Analysis Report
Green Dot Corporation (GDOT): Free Stock Analysis Report
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