When you write about the markets as much as I do, finding subjects to cover is challenging. A recent New York Times article about “Pay Later” lenders gave me an idea about credit bureau stocks to buy. 

The Times article discussed how credit bureaus want to start including “buy now, pay later” purchases on consumer credit reports and credit scores. 

This was prompted by Apple’s (NASDAQ:AAPL) February move to start reporting loans made through its Apple Pay Later service to Experian (OTCMKTS:EXPGY), one of the three main credit bureaus. 

A major issue with not reporting the loans is that it creates what experts call “phantom debt.” The credit bureaus argue that by including them, consumers are building credit. Pay-later lenders argue that each purchase makes a separate loan, hurting a consumer’s credit score. 

Ultimately, the Times article concluded that pay-later firms will either be forced by regulators to report pay-later loans or market forces, such as loan delinquencies, will get them to act. 

Either way, the three credit bureaus—Experian, TransUnion (NYSE:TRU), and Equifax (NYSE:EFX)—should remain integral to the lending industry. 

One’s a Buy, one’s a Hold, and one’s a Sell. 

Experian (EXPGY)

Seventeen analysts cover Experian. Of those, 14 rate it a Buy, with a $44.94 target price, about 9% higher than its current share price. Of the three stocks, Experian has the highest approval rating from analysts. 

Experian’s investor relations website cites five reasons why you should invest in the company: 1) It’s a market leader, 2) it has a purpose-driven growth strategy, 3) it has a sustainable focus and strong commitment to ESG, 4) it is financially sound, and 5) it has a rock-solid foundation for growth. 

That’s corporate speak, for it’s one heck of a company. 

In its latest presentation, the company points out that its 2023 revenue of $6.62 billion was higher than Equifax ($5.12 billion) and TransUnion ($3.71 billion). Further, it has the most globally diverse revenue, with 33% outside North America compared to 22% and 20% for the other two, respectively. 

The company estimates its global addressable market opportunity is $150 billion annually. That’s a double-edged sword. On the one hand, there’s tremendous growth potential. On the other hand, it’s not going to be easy or cheap to grab a bigger piece of the pie. 

When in doubt, I look to free cash flow to decide if a company has what it takes for the long haul. In 2023, it was $1.11 billion, down from $1.31 billion a year earlier. Based on an enterprise value of $41.34 billion, it has a free cash flow yield of 2.7%. Anything under 4% is overvalued. 

Experian is a Buy. 

TransUnion (TRU) 

TransUnion is covered by 20 analysts. Of those, 16 rate it a Buy, with a $90.00 target price, about 14% higher than its current share price.

As I wrote in the previous section, TransUnion has the lowest annual revenue of the three credit bureaus. However, it’s nearly doubled since hitting a 52-week low of $42.09 in November 2023. Here’s why. 

In Q1 2024, TransUnion delivered $1 billion in quarterly revenue for the first time in its history, up 8%, excluding currency, to $1.02 billion. Every region experienced a year-over-year increase. Meanwhile, its adjusted net income for the quarter was $179 million, 16% higher than Q1 2023. 

“We are raising our 2024 guidance following first quarter outperformance and now expect to deliver 5 to 6.5 percent revenue growth for the year. We remain focused on driving strong results in a low-growth market environment, with no assumed in-year benefits from interest rate cuts,” stated CEO Chris Cartwright in its Q1 2024 press release. 

In 2023, TransUnion’s free cash flow was $334.70 million. Based on an enterprise value of $20.08 billion, it has a free cash flow yield of 1.7%. Anything under 4% is overvalued. 

TransUnion is a Hold. 

Equifax (EFX)

Equifax is covered by 23 analysts. Of those, 18 rate it a Buy, with a $267.30 target price, about 16% higher than its current share price. 

Over the past year, Equifax stock has increased 15%, less than TransUnion, which has increased 21%, or Experian, which has increased 21.5%. That’s the bad news. The good news is that Equifax has significantly outperformed its two competitors over the past five years. 

Equifax was founded in Atlanta in 1899 as Retail Credit Company. It changed its name to Equifax in 1975.  

Equifax reported its Q1 2024 results in mid-April. Revenues, excluding currency, increased by 8% to $1.39 billion, while its net income rose 11% to $124.9 million. For all of 2024, it expects revenue of $5.72 billion at the midpoint of its guidance, 8.5% higher than 2023, with adjusted earnings per share of $7.35, 9.5% higher than a year ago. 

In 2023, Equifax’s free cash flow was $515.5 million [operating cash flow of $1.12 billion less $601.3 million in capital expenditures], up considerably from 2023. Based on an enterprise value of $33.64 billion, it has a free cash flow yield of 1.5%. Anything under 4% is overvalued. 

Equifax is a Sell.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.