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Lender Processing Services

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With an impressive year-to-date return of 97.6%, shares of Lender Processing Services, Inc. (LPS) are currently hovering near its 52-week high of $30.88. This Zacks #1 Rank (Strong Buy) business services provider announced a strong second quarter in early August, and will report again later this month. As it continues with the growth trajectory through a diligent execution of its operating strategy, Lender Processing Services looks to be a solid momentum pick.

Strong Second Quarter

On August 2, Lender Processing Services reported solid second quarter results with a 35.7% year-over-year spike in adjusted net income to 76 cents per share. The result also topped the Zacks Consensus Estimate of 60 cents by 26.7%.

Total revenues increased 6.7% year over year to $533.2 million. The adjusted EBITDA margin (earnings before interest, tax, depreciation, and amortization) surged 464 basis points to 27.3%, due to strong performances across all segments. Adjusted free cash flow increased 40.5% year over year to $114.9 million as a result of higher net earnings.

Lender Processing Services is scheduled to report again on October 29. Adjusted net earnings are expected between 68 cents and 72 cents per share. The current Zacks Consensus Estimate for the third quarter is at 71 cents, a full 10 cents better than three months ago.

Surge in Earnings Momentum

Over the past 90 days, the Zacks Consensus Estimate for 2012 increased 13.6% to $2.75, suggesting year-over-year growth of 2.5%. The Zacks Consensus Estimate for 2013 advanced 4.5% to $2.78 over the same period, representing growth of 1.3%.

Attractive Valuation

The valuation for Lender Processing Services looks fairly attractive on a price-to-earnings (P/E) and price-to-sales (P/S) basis. Shares are trading at a forward P/E of 11.14x, a 29.8% discount to the peer group average of 15.87x. On a P/S basis, the stock is currently trading at 1.23x, versus the peer group average of 1.84x. Its PEG ratio is 1.01 based on a 5-year earnings growth rate of 11.0%.

Chart Shows Growth Potential

Since February 6, 2012, shares of Lender Processing Services have consistently fared better than the simple moving average for 200 days or SMA (200). The continuous uptrend in stock prices, as mirrored in the following chart, offers an enticing upside potential going forward. Volume is fairly strong, averaging 610K daily. The year-to-date return for the stock is noteworthy at 97.6% compared to the S&P 500 tally of 13.9%.

Lender Processing Services offers a variety of integrated technology and outsourced services to the mortgage lending industry in the U.S. Its product portfolio includes mortgage and consumer loan processing services, mortgage settlement services, default solutions and loan performance analytics, as well as end-to-end technology and data support solutions for the real estate industry, capital markets investors and government offices. The company currently has a market cap of $2.59 billion.

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