Selloff of Equifax, TransUnion, Experian Stocks Is Overdone. ‘Buy the Dip,’ Analysts Say.

Morgan Stanley reiterates Overweight ratings for Equifax, TransUnion, and Experian stocks. (Elijah Nouvelage/Bloomberg)

America’s big three credit bureaus may not be doomed even as Fair Isaac attempts to eat into their revenue, according to Morgan Stanley.

Shares of Equifax, TransUnion, and Experian dropped sharply Thursday after Fair Isaac unveiled new pricing models that will allow mortgage lenders to calculate and distribute FICO scores directly to borrowers. The program would allow score resellers to bypass the credit bureaus, who currently charge a markup.

All three stocks pared their losses Friday, with Equifax rising 1.6%, TransUnion climbing 4.6%, and New York-listed Experian shares up 0.8%.

While the change may have caught the credit bureaus off guard, it doesn’t cut them out of the mortgage-lending process, said Morgan Stanley. The bureaus still own the credit data and have an alternative scoring system, providing leverage as they formulate a response.

“Without the underlying credit history, you cannot calculate a credit score,” wrote analyst Toni Kaplan.

One response could be to charge more for their data. Price hikes typically go into effect on Jan. 1, so the bureaus have time to mull a change. Doing so, however, risks irking regulators at the Federal Housing Finance Agency who have railed against credit score costs, Morgan Stanley noted.

Another option for the credit bureaus is to more aggressively promote VantageScore, which is a joint venture of the three bureaus. The FHFA announced earlier this year that it will allow the VantageScore 4.0 for mortgage underwriting, and many lenders are already testing the FICO score alternative, Morgan Stanley said.

Either way, the credit bureaus aren’t in crisis. In fact, they have genuine tailwinds at their back.

“We expect improved consumer credit conditions, a more favorable regulatory environment, rate cuts, and significant mortgage upside over the next few years to drive Credit Bureau outperformance,” Kaplan wrote, reiterating an Overweight rating for both stocks.

Writing separately on Experian, which is based in the U.K., Morgan Stanley analyst Annelies Vermeulen had an even simpler take: “Buy the dip.”

Score resellers may find it difficult to implement Fair Isaac’s direct license system, and Thursday’s announcement will likely just quicken adoption of VantageScore, Morgan Stanley said. The firm reiterated an Overweight rating for the stock.

“Experian remains among the highest quality stocks in our coverage, and we see today’s sell off as a buying opportunity,” Vermeulen wrote.

Write to Nate Wolf at nate.wolf@barrons.com