Last year couldn't have ended soon enough for data broker ChoicePoint (NYSE:CPS), which suffered a rash of recriminations from people outraged at its (involuntary) involvement in last year's spate of data privacy breaches. Such breaches are still continuing in the new year, but ChoicePoint has to be relieved that its name is no longer figuring prominently in the headlines, which are now filled with the names of banks such as People's Bank (NASDAQ:PBCT) and data couriers such as UPS (NYSE:UPS). When we next hear from ChoicePoint, before the market opens on Thursday, it will be on the pleasantly mundane subject of the company's fiscal Q1 2006 earnings.

Wall Street Wisdom:

  • General consensus. By and large, the 16 analysts who follow ChoicePoint love the company, bad press or no. It rates zero "sells," just two "holds," and 14 "buys."
  • Revenues. The analysts believe that ChoicePoint grew its sales by 12% to $260.75 million.
  • Earnings. Earnings, however, are believed to have grown just 5%, to $0.45 per share.

Margin watch:
I love to watch trailing-12-month earnings trends as they scroll by, with four-quarters-old results falling off the chart every three months to be replaced by the new quarter's numbers. In ChoicePoint's case, we see that margins were trending upward until two quarters ago, when they began to slide. The main culprit: charges the company took to cover the costs of strengthening the security of its data and prevent a repeat of 2005's breaches, and further charges to compensate people whose private information may have been compromised.

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

44.1

45.1

46.4

47.3

46.9

46.7

Op.

25.5

25.9

26.3

26.4

26.1

25.6

Net

14.8

15.3

16.1

15.8

15.2

14.7

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish outlook:
Look for continued margin deterioration as ChoicePoint works through the last of those charges. Actually, three months ago, ChoicePoint guided us to expect operating margins in the "mid-25%-to-26% range" -- so perhaps the charges are just about done. Once they've worked their way past the view of the backwards-facing TTM periscope, look for margins to resume their upwards march.

Fool contributorRich Smithdoes not own shares of any company named above.