Equifax Can Come Back, Though The Pain Will Be Severe

Equifax logo - Red lettering on white background.Congressional inquiries. Massive class action lawsuits. Potential insider trading allegations for top executives.

These are just some of the possibilities that await the shares of Equifax after the company reported a major security breach earlier this week.

Shares of the company rightly plummeted on Friday after the breach was revealed, as shares of Equifax finished down over 13% at $123.23. This represents billions of dollars in market capitalization and the bloodbath is likely far from over.

According to the company, 143 million Americans may have had their most closely guarded details exploited by hackers. Regardless of whether or not you actually use Equifax's services, the company almost certainly has all of your information, as they are one of the major credit monitoring bureaus in the country. If you have ever applied for a car loan, credit card, etc., Equifax almost certainly has your personal information.

This breach means that the details of hundreds of millions of Americans may be sitting out in the "dark web" somewhere, which obviously opens up the possibility of identify theft for many. This is much worse than simply getting your credit card information stolen, as cards are easily replaceable. Identify theft is much more malicious and potentially financially ruinous.

This obviously opens the company up to massive litigation - I would expect a massive class action lawsuit to be filed.

In addition, the company has other issues, as three company insiders sold shares shortly after the company first learned of security breach on July 29th. They are claiming innocence, saying that they hadn't yet learned of the breach when they sold their shares. Is it reasonable to think that the CFO of a company wouldn't know of a major security breach 4 days after the company first learned about it? Seems unlikely to me, though we'll certainly be learning more in the coming days and weeks.


Can Equifax recover from this? Sure, but there is going to be a tremendous amount of pain in the interim. It took companies like Target years to recover from their security breaches, and Equifax's breach is likely the worst of all time.

Some have been arguing that shares of Equifax are a compelling bargain now after Friday's selloff. That's insane. I don't see why anybody would want to own shares of the company right now, especially with all of the uncertainty as to what their eventual liability for the breach will be. Maybe in a year, but certainly not now.

Disclaimer: I'm Short common shares of EFX and long puts

Filed under: General Knowledge

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