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Lender Processing Services (LPS)

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Lender Processing Services (LPS) was upgraded from Neutral to Outperform following the its improved risk profile and the encouraging prospects for the origination market. Margin expansion due to lower debt and improved free cash flow were other factors that led to the upgrade.

The four year old spin off from Fidelity National Services (FIS) Lender Processing Services provides integrated technology and outsourced services to the mortgage lending industry. The company's products and services span the entire life cycle of a mortgage, from origination, to servicing, to foreclosure.

LPS reported second quarter 2012 adjusted earnings per share of $0.76, which comfortably surpassed the Zacks Consensus Estimate of $0.60. Earnings per share spiked 36% from the year-ago level.

Our six month target price of $32.00 is based on a 11.7x multiple for our earnings estimate for 2012. The target price implies an expected total return of 19.6% over that period.

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