If you are wondering whether TransUnion is a value opportunity or a value trap at around $87 a share, you are not alone. This stock divides opinion, which is exactly why it is worth a closer look.
Over the past week the shares have gained 2.9%, adding to a 6.4% move over the last month. That still leaves the stock down 5.2% year to date and 7.9% over the last year, despite a 56.6% gain over three years.
Recent headlines have focused on TransUnion’s ongoing investments in data and analytics capabilities and its push into higher growth verticals such as fraud prevention and digital identity. This reinforces the idea that it is repositioning for a more data intensive future. At the same time, market commentary has flagged regulatory and macro risks for credit reporting businesses, which helps explain why the share price has been slower to recover than some other data and fintech names.
On our framework TransUnion scores a 3 out of 6 valuation scoresuggesting the market is only partly recognizing potential undervaluation. Next we will look at how different valuation methods stack up for TRU and finish with a more holistic way to think about what the stock may be worth.
A Discounted Cash Flow model estimates what a business is worth by projecting its future cash flows and then discounting those projections back to today in $ terms. For TransUnion, the model uses a 2 Stage Free Cash Flow to Equity approach, starting from last twelve months free cash flow of about $575.5 million and building up a trajectory of rising cash generation.
Analysts provide detailed forecasts for the next several years, and beyond that Simply Wall St extrapolates cash flows using gradually moderating growth assumptions. On this basis, TransUnion’s free cash flow is projected to reach around $1.64 billion by 2035. When all these future $ cash flows are discounted back to today, the estimated intrinsic value comes out at roughly $137.66 per share.
Compared with the current share price near $87, the DCF suggests the stock trades at about a 36.7% discount to its calculated fair value, which implies meaningful upside if these projections prove broadly accurate.
For profitable companies like TransUnion, the price to earnings, or PE, ratio is a practical way to gauge whether investors are paying a reasonable price for each dollar of current earnings. The level of a normal or fair PE is shaped by how fast earnings are expected to grow and how risky those earnings are, with higher growth and lower perceived risk usually justifying a higher multiple.
TransUnion currently trades on a PE of about 40.23x. That is well above both the Professional Services industry average of roughly 24.36x and the peer group average near 35.00x, suggesting the market already assigns a premium rating to the stock. Simply Wall St also calculates a proprietary Fair Ratio for each company, which in TransUnion’s case comes out at about 32.30x.
This Fair Ratio is more informative than a simple comparison with peers or the sector because it explicitly incorporates TransUnion’s earnings growth profile, risk factors, profit margins, industry dynamics and market capitalization. Comparing the current 40.23x multiple with the 32.30x Fair Ratio points to the shares trading richer than what those fundamentals would typically warrant, indicating some overvaluation on a PE basis.
Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives, a simple way to connect your view of TransUnion’s story to a set of numbers and a fair value estimate. A Narrative on Simply Wall St is your own storyline for the company, where you spell out how you see its future revenue, earnings and margins evolving, and link that directly to a financial forecast and fair value. Narratives are easy to create and explore on the Community page used by millions of investors, and they help you decide when to buy or sell by comparing your Fair Value to the current Price. They also stay live and dynamic, automatically updating as new information like news, guidance and earnings is released. For example, one TransUnion Narrative might lean bullish, assuming strong global expansion and technology driven margin gains to support a fair value closer to the most optimistic $135 price target, while a more cautious Narrative could emphasize regulatory and competitive risks and land nearer the $84 bearish target.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
