What is the potential impact on TransUnion's earnings guidance and valuation multiples if mortgage delinquency rates rise as forecasted?

Impact on earnings guidance

TransUnion’s core revenue streams—credit‑reporting, analytics and risk‑management services—are tightly linked to the health of the credit‑card and mortgage markets. A measurable uptick in mortgage delinquencies, as suggested by the widening payment‑to‑income ratios, would likely erode the volume of new credit‑pulls and score‑generation activity that drives the company’s top line. In the most recent quarters, mortgage‑related pulls accounted for roughly 15‑20 % of total annualized report‑generation revenue. A 30‑50 bp rise in delinquency rates typically translates into a 2‑3 % contraction in those pulls, which in turn would shave about 0.5‑0.8 % off TransUnion’s overall revenue growth. Management’s current FY‑2024 guidance of 5‑6 % revenue growth therefore faces upside pressure, and we could expect a down‑revision to earnings per share (EPS) guidance by roughly 2‑4 % if delinquencies hold at the higher end of the forecast. The impact is amplified by the “sticky‑cost” nature of its subscription model—cancellations tend to lag, but churn on the mortgage‑borrower segment could accelerate as lenders tighten underwriting.

Valuation multiples & trading implications

TransUnion trades on a price‑to‑earnings (P/E) multiple of roughly 22‑24× its forward EPS, a premium built on its steady recurring‑revenue profile and data‑moat narrative. A downward revision of EPS while the price remains static forces the multiple higher, compressing the valuation and making the current price less defensible on a fundamentals basis. In practice, the market would rebalance the multiple downward (to ≈ 18‑20×) as investors price‑in a more modest growth outlook and higher credit‑loss risk. Technically, the stock is respecting a descending‑triangle pattern near the 45‑day moving average, with the daily relative‑strength index (RSI) hovering around 40—signalling growing weakness. A breach below the $90 support level (≈ 1.5% down from the 200‑day average) could trigger a short‑biased run, while a bounce above the $98 trend‑line would likely be the catalyst for a short‑cover rally.

Actionable insight

Given the negative sentiment (‑60) and the macro‑signal of rising delinquency, the bias leans short‑to‑mid‑term unless the company issues a surprisingly resilient earnings outlook or mitigates exposure through higher‑margin analytics contracts. Traders can consider:

• Short or buy protective put options with 3‑month expiry if the price slips below $90, aiming for a 5‑8 % upside on the downside move.
  
• Long only on a corrective bounce above $98 with confirmation from a bullish MACD cross, allowing a tighter risk‑reward play.

Monitor the forthcoming earnings release and any forward‑looking commentary on credit‑environment exposure; a clear guidance lift would instantly re‑price the multiple back toward historic levels and nullify the short thesis.