What Happened?
Shares of credit reporting giant Equifax (NYSE: EFX) fell 8.1% in the morning session after Fair Isaac Corporation (FICO), a key business partner, announced a new program to license its mortgage credit scores directly to lenders, threatening to bypass the credit bureaus.
This move disrupted the long-standing business model where bureaus like Equifax acted as intermediaries, selling FICO scores to lenders at a significant markup. FICO's new 'Mortgage Direct License Program' effectively cut out this middle-man role. The company also stated it would charge 50% less per score, a change that analysts noted would likely eliminate the profit margins Equifax and its peers earned on these products. The announcement sent shockwaves through the credit reporting industry, as investors weighed the potential negative impact on Equifax's future revenue and profits. Shares of other major credit bureaus, TransUnion and Experian, also slumped following the news.
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What Is The Market Telling Us
Equifax’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 21 days ago when the stock gained 6.4% on the news that the Consumer Price Index (CPI) report bolstered expectations for a Federal Reserve interest rate cut despite showing persistent inflation.
The August CPI data, a key measure of inflation, showed prices rose 2.9% annually, slightly more than economists expected. While inflation remains above the Federal Reserve's 2% target, investors were focusing on other signs of a cooling economy, particularly a weakening labor market. As a result, the market widely anticipated that the Fed would cut interest rates at its September meeting to support the economy. Investors priced in multiple rate cuts by year-end, which boosted market sentiment and sent Treasury yields lower.
Equifax is down 8.3% since the beginning of the year, and at $230.15 per share, it is trading 21.6% below its 52-week high of $293.50 from October 2024. Investors who bought $1,000 worth of Equifax’s shares 5 years ago would now be looking at an investment worth $1,448.
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