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Zacks Elite Stock of the Day

Dolan Media (DM) kept its winning streak alive when it surprised on earnings on May 4 for the 6th straight quarter in a row. The professional services division, which handles mortgage default processing, continues to outperform which isn't surprising given the state of the U.S. housing market.

Dolan has two divisions the Professional Services Division and the Business Information Division. The company gets the "media" in its current name (which is soon to change, actually) from the Business Information segment which publishes business journals, court and commercial media and other focused information products and services in each of the 21 geographic markets in the U.S.

As you can imagine, this segment has not been performing well as advertising revenue has plunged. But this segment is only about a quarter of the company's revenues now. The main focus is clearly on Professional Services.

In the first quarter, in the Business Information segment, revenue fell nearly 5% to $21 million from $22 million in the year ago period. The company tried to spin this optimistically, stating that public notice advertising partially offset the decline in traditional advertising revenue.

On the flip side, revenue jumped 33% in Professional Services to $56 million from $42 million a year ago. The surge in revenue was due to higher NDeX file volume and a strong quarter for DiscoverReady, the litigation support services unit.

NDeX volume rose to 95,700 mortgage defaults processed from 91,100 a year ago. It was also significantly higher than the fourth quarter of 2009 in which the company processed 81,900 defaults.

The expansion into the Florida market boosted NDeX volume in the quarter but defaults were hampered in several states as mortgage companies were pressured by federal regulatory agencies to slow the rates of foreclosure. Dolan believed that these actions will simply delay the filings and ultimately will not impact actual volume that is processed.

2010 Outlook Reaffirmed

Perhaps the only slightly disappointing news in the first quarter report was that Dolan did not raise guidance.

It still sees revenue in the range of $307 million to $310 million. Earnings per share are expected between $1.11 and $1.18.

The current Zacks Consensus Estimate is calling for $1.15 per share. This is 2010 earnings growth of 40%.

Fundamentals

Dolan is currently a Zacks #3 Rank (hold) stock. It continues to trade cheaply. It has a forward P/E of just 10x estimates. The company also has a PEG ratio of 0.66 which makes it a value stock.

The company also has a solid trailing 1-year return on equity of 14% which is well above the industry average of 7.3%.

The 1-Year Chart

Dolan has been trading in a very narrow trading range for most of the last year. The stock got a boost on the first quarter earnings report of 10%. Let's see if it can finally break out of this range.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

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