On May 28, 2013, shares of Fidelity National Financial, Inc. (FNF) hit a 52-week high of $27.17. The momentum was driven by the announcement to acquire Lender Processing Services, Inc. (LPS) supported by first-quarter results, which included a 5% positive surprise.
Yesterday, Fidelity National announced its plans to acquire Lender Processing Services for a purchase consideration of $2.9 billion or $33.25 per share. Following the acquisition, the company will emerge as a primary provider of title insurance, mortgage technology and mortgage services in the U.S.
Additionally, Fidelity National expects the acquisition to generate cost synergies of more than $100 million as well as be accretive to future earnings. Moreover, adding Lender Processing Services to its portfolio will ensure a diversified as well as a recurring revenue base for Fidelity National.
Previously, on May 1, Fidelity National reported first-quarter 2013 earnings. Net operating earnings came in at 42 cents, up 31.2% year over year. Top line surged 72% year over year.
With respect to earnings trend, Fidelity National delivered positive earnings surprise in all the past 4 quarters with an average of 13.5%.
However, valuation for Fidelity National looks stretched. The shares are trading at a 6.5% premium to the peer group average on a forward price-to-earnings basis and at a 35.9% premium on a price-to-book basis. Return on equity is 27% higher than the peer group average. Nevertheless, the 1-year return from the stock came in at 37.4%, much above the S&P’s return of 26%.
Fidelity National carries a Zacks Rank # 2 (Buy). Property and casualty insurers like AXIS Capital Holdings Ltd. (AXS) and Montpelier Re Holdings Ltd. (MRH), among others, carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.
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