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Recently, Fidelity National Financial, Inc. (FNF - Snapshot Report) announced the formation of its wholly owned subsidiary Black Knight Financial Services, Inc. (Black Knight) by restructuring its recently acquired Lender Processing Services, Inc. (LPS).

On Jan 2, 2013, the company completed its much-awaited buyout of Lender Processing Services Inc. for $37.14 per share. The cash component in the consideration was $28.10 per share while the remaining $9.04 was in Fidelity National shares.

Black Knight will have two operating subsidiaries – ServiceLink Holdings, LLC (ServiceLink) and Black Knight Financial Services, LLC (BKFS).  Fidelity National will retain 65% stake in each of the subsidiaries, issuing the remaining 35% to funds affiliated with Thomas H. Lee Partners, L.P. and certain related entities.  

Hence, Fidelity National Title Group, Inc. and Black Knight will become Fidelity National’s core operating subsidiaries.

Following the restructuring, Black Knight, via ServiceLink and BKFS, will own and operate LPS businesses and Fidelity National’s ServiceLink business.

BKFS includes LPS’ former technology, data, analytics businesses as well as the technology offerings that were previously owned by Fidelity National’s ServiceLink division.

On the other hand, ServiceLink includes LPS’ former business of transaction services and Fidelity National’s former ServiceLink division. It offers a wide range of origination and default-related products and services to the major national and regional mortgage originators.

The restructuring is expected to fuel organic growth for Fidelity National and is also expected to create new investment opportunities for the company to grow its core business.

The company has solid track record of delivering positive earnings surprises over the last eight quarters with an average beat of 11.8%.  We expect this momentum to continue when the company reports its fourth-quarter 2013 results. This is because our proven model shows that Fidelity National has a perfect combination of a Zacks Rank #1 (Strong Buy) and a positive Earnings ESP of 19.4%.

Other players worth considering in the property and casualty insurance space include Allied World Assurance Company Holdings, AG (AWH - Snapshot Report), AmTrust Financial Services, Inc. (AFSI - Snapshot Report) and HCI Group, Inc. (HCI - Snapshot Report). All these stocks carry the same Zacks Rank as Fidelity National.

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