Credit rating service Equifax (EFX -0.25%) is feeling the brunt of "higher for longer," warning that if rates remain high its results are likely to suffer. Investors are cashing out, sending shares down 10% as of 11 a.m. ET.
Credit demand is under pressure
Equifax is a financial data analytics company best known as one of the primary providers of consumer credit scores. Yesterday, it reported its financial results for the first quarter of 2024. The company earned $1.50 per share in the first quarter, beating Wall Street's $1.44 estimate, but revenue of $1.39 billion was slightly below expectations.
The company also forecast it would earn between $1.65 and $1.75 per share in the current quarter on revenue between $1.41 billion and $1.43 billion. Both ranges fell short of the consensus estimate for $1.87 per share in earnings on sales of $1.44 billion.
The issue is higher rates, and the impact they have on mortgage demand. Fewer mortgage applications means less business for Equifax's credit scoring tools.
Heading into 2024, investors had expected rate cuts by the spring at the latest, which hopefully would have stimulated demand for lending products. But with U.S. inflation remaining a concern, market expectations regarding the timing of a potential rate cut have changed.
Is Equifax stock a buy after its post-earnings drop?
Equifax held firm to its full-year guidance for earnings of between $7.20 and $7.50 per share on revenue of between $5.67 billion and $5.77 billion. The ranges are below the $7.64 per share of earnings on $5.78 billion in revenue that analysts had expected.
There's nothing wrong with Equifax's business, but it will be tough for earnings to rebound until macro conditions change.
Prior to earnings Equifax shares had been up 50% since last October on expectations of a rate cut. Until there is more clarity from the Federal Reserve, there is a risk that Equifax shares might fall further.
