Lender Processing Stays at Neutral

We are reiterating our Neutral recommendation on Lender Processing Services Inc. (LPS), following the company’s earnings release. The company is a provider of integrated technology and outsourced services to the mortgage lending industry.

Second Quarter Highlights

Lender Processing reported second quarter 2010 adjusted earnings per share of 89 cents that inched past the Zacks Consensus Estimate of 88 cents. Results were well ahead of the prior-year quarter’s earnings of 83 cents.

However, the company’s consolidated revenues of $599.1 million in the quarter under review reflected a 2.3% drop year over year. The decline was primarily due to a challenging environment in both the origination and default markets.

Our Take

Lender Processing maintains a balanced operating model, which is designed to provide a natural hedge during an upturn or downturn in the real estate market. During the second quarter 2010, the company renewed as well as signed new customer contracts representing approximately 120 million in annualized revenues. For 2011, the company reiterated its long-term growth target of 6% to 9% revenue growth based on the ability to leverage its leading technology platform, strong customer relationship and key growth statistics.

However, concentration of high debt in the balance sheet and weak new origination market will remain an overhang on Lender Processing. The company witnessed a decline in revenues due to loan facilitation and default services in the second quarter. Moreover, we remain concerned about the company’s reduced revenue guidance for fiscal 2010.

Based on both positive and negative factors in retaining this share, we have a long-term Neutral recommendation on the stock.

LENDER PROC SVC (LPS): Free Stock Analysis Report

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