There's no denying it's been a tough year for data processor ChoicePoint
And the storm isn't over yet. ChoicePoint, as well as peer data vendors Reed Elsevier
Even worse: This information isn't always impervious to theft by criminals. And perhaps the biggest wakeup call of all: This problem, which privacy advocates have been clamoring about for years, can affect members of Congress, too. In fact, Bank of America
Such controversies do not come without costs. In ChoicePoint's case, the costs appeared in the form of distinct charges taken to the company's second-quarter 2005 earnings. In calculating its profits for Q2 2005, ChoicePoint deducted $0.04 per share as a charge to cover the company's legal expenses and professional fees for the past quarter -- as well as expenses incurred in its battle to tighten its data security, deal with lawsuits from affected consumers, and pay for the credit-monitoring services that ChoicePoint has voluntarily offered to thousands of people potentially affected by its data breach.
As a result, ChoicePoint saw a potential 10% increase in its profits per diluted share slip away last week, and ended Q2 with the same EPS number it recorded one year ago: $0.40. Even so, these "flat" earnings -- when combined with 15% year-on-year revenue growth and expectations of full-year revenue growth of between 16% and 19% -- have not only supported ChoicePoint's stock price, but have actually driven it upward by a healthy 3% or so over the past few days.
It would seem that investors have again become -- if I may bring back the time-worn, overused phrase -- "cautiously optimistic" about the company's prospects. Litigation risk certainly exists. Regulatory risk, too. But I'd submit that any company that can, in the face of such troubles, still produce a 5.7% increase in year-over-year free cash flow (ChoicePoint generated $82.1 million in 1H 2005) will find a way to pull through.
For more on the data theft saga, read:
- An Acxiomatic Bargain
- What Would Spitzer Do?
- IRS Chooses ChoicePoint
- Oops, They Did It Again
- Data Crimes Suggest Conspiracy
Fool contributor Rich Smith owns no shares in any company mentioned in this article.