Interesting point of view. Here's a different perspective - from a recent Barron's article. Good luck shorting and/or trading. Based on what I see and read, I'm comfortable being long and holding.
October 5, 2010 "THE WORST OF TIMES AND THE BEST OF TIMES" By Alexander Eule
"It could have been the worst of times for mortgage processor Lender Processing Services (ticker: LPS). Spun out of Fidelity National Information Services in July 2008, LPS was caught up in a once-a-generation housing bust.
"Nearly half of the nation's residential mortgage originations flow through Lender Processing's software. According to the Mortgage Bankers Association, new mortgage loans fell to $1.5 trillion in 2008 from $3 trillion in '05, a potentially devastating situation for LPS. Instead, it turned into a windfall. In 2009, the firm's first full year as a public company, demand for its default services helped boost earnings by 30%, as banks turned to the company for help managing an unprecedented flood of foreclosed properties.
"Last year LPS earned a record $300 million, or $3.12 a share, on revenue of $2.4 billion. Default services made up 48% of sales, up from 29% in 2007. EPS, which are expected to jump 12% this year, to $3.48 a share, could climb another 9% in 2011.
"Now the company faces a new challenge: a declining foreclosure market. Delinquent loans, which reached nearly 11% of mortgages a year ago, have slipped to 9% this year. (Prior to the housing bust, that number hovered at around 4%). Wall Street is also spooked by a potential freeze in foreclosures. In the last two weeks, JP Morgan Chase, Bank of America and GMAC Home Mortgage announced that they were suspending foreclosure proceedings in 23 states, pending legal reviews.
"All of this has weighed heavily on LPS's shares, which peaked a year ago at $44.38. Yesterday, they closed at $28.76, or 7.5 times 2011 estimates.
"Investors are overreacting to the recent news. While some foreclosures will be delayed, they won't be halted. Nor, given the country's stubbornly high unemployment rate, is the downward trend in delinquencies likely to continue. LPS shares could rebound 30% or more in a year, though they could fall further from here before they turn.
"Barclays Capital estimates normalized earnings for LPS of $4.73 a share on $3.03 billion of revenue. In that scenario, a decline in default-related revenue would be offset by new work tied to loan originations. Barclays sees 10% revenue growth for LPS's highly-profitable technology platform, which includes mortgage-processing and other software that automates the loan process. Revenue from the company's lower-margin loan-facilitation business, including traditional services like appraisals and title searches, could triple.
"At 10 times 2011 estimates, LPS's shares are worth $38. Based on normalized earnings, the stock could eventually grow to $47."
Very informative and put to the point too and easy for all to digest. It's nice to know there's at least one other person out there that can crunch the numbers and understand what's going on with this co. I also want to reiterate (from previous posts) that "delays" in foreclosures only POSTPONES one area of LPS' revenue. What MOST investors don't realize (fund manages included) is that LPS is a multi-facited co. and so all the time that forecloures are delayed, they're still on the bank's books and thus STILL on LPS' books too. And guess what? Well use some immagination there. This is a win-win situation for LPS but most just don't get it. GLTA