Shares of Equifax were the best performers in the S&P 500 on Tuesday after the company reported better-than-expected third-quarter earnings and signaled that momentum was growing for VantageScore, the FICO score competitor, even as the U.S. mortgage market has weakened.
Equifax stock rose 10% to $175.04 and was on pace for its best daily percentage gain in nearly two years, according to Dow Jones Market Data.
Equifax stock ended Monday down 1.7% and shares have fallen 27% this year. The stock had risen 15% as of Monday since closing at $137.24 on Sept. 30.
Equifax on Tuesday posted adjusted earnings of $2.26 a share, up from $2.04 a year ago and above Wall Street's expectation of $2.20. Revenue grew 9.6% to $1.69 billion, meeting the analyst consensus call for $1.69 billion, according to FactSet.
The company, however, cut its full-year revenue guidance and narrowed its earnings view. Equifax expects adjusted earnings of $8.45 to $8.55 a share for the year, up from its previous expectation for earnings of $8.39 to $8.69. The company sees revenue coming in between $6.65 billion to $6.68 billion, down from $6.71 billion and $6.78 billion.
Equifax said Tuesday that U.S. mortgage revenue grew 15% in the quarter even as the mortgage market weakened on a substantial increase in mortgage rates. Equifax said the weaker U.S. mortgage market was the reason for its revenue guidance cut.
Wall Street nonetheless was impressed, particularly with commentary on the earnings call around VantageScore -- the joint venture from credit bureaus Equifax, TransUnion, and Experian -- which has recently gained momentum in becoming a major competitor to Fair Isaac's FICO score.
CEO Mark Begor said on the earnings call that Equifax is seeing a rapid adoption of VantageScore from mortgage lenders since April. The CEO added that revenue continues to be small but that the company expects more lenders to move to the paid VantageScore model.
Equifax management added that looking at 2027 it expects VantageScore momentum to be "super strong" as mortgage customers take advantage of the "significant price delta" versus the FICO score.
The positive commentary around VantageScore comes as Bill Pulte, the director of the Federal Housing Finance Agency, in September said mortgage pricing will be simplified and that the new structure will incorporate VantageScore, the latest sign FICO could be losing its dominance in the mortgage market.
Historically, if someone wanted to buy a home they needed a FICO score.
With the change, VantageScore joined the existing FICO Classic pricing grid, which has long been the only credit score accepted on the mortgage pricing grid. This means that lenders will no longer necessarily have to pay for a FICO score and potentially bypass Fair Isaac completely.
Following the changes, Jefferies warned that FICO's adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, could decline by about 20% if VantageScore 4.0 becomes a real competitive threat.
Jefferies also estimated that VantageScore could potentially secure upward of 80% of the market share for conforming mortgages under the new pricing scheme.
FICO stock rose 1.6% on Tuesday while shares of TransUnion advanced 5%.
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