Monday, April 18, 2011

Lender Processing Services Inc (NYSE: LPS) Q2 2011 Price Target

Recent price: 29.46$
P/E Ratio: 9.12
3 Months Target Price: 33$

Company Description
According to Reuters, Lender Processing Services, Inc. (LPS), incorporated in December 2007, is a provider of integrated technology and services to the mortgage lending industry, with mortgage processing and management services in the United States. The Company operates in two segments: technology, data and analytics and loan transaction services, which produced approximately 30% and 70%, respectively, of the Company’s revenues during the year ended December 31, 2009. A number of financial institutions use LPS’s solutions.

The Company’s technology solutions include the Company’s mortgage processing system, which automates all areas of loan servicing, including loan setup and ongoing processing, customer service, accounting and reporting. The Company’s technology solutions also include its Desktop system, which is a middleware enterprise workflow management application designed to automate business processes. Its loan transaction services include the Company’s default management services, which are used by mortgage lenders, servicers, attorneys and trustees, and its loan facilitation services, which support aspects of the closing of mortgage loan transactions to lenders and loan servicers.

Confidence Margins
Strong resistance $34.88 (+18%)
Light resistance $32.79 (+11%)
Light support $12.04 (-1%)
Strong support $11.15 (-9%)

The company is trading down because of a wide variety of legal risks facing LPS, which in recent years has handled about half of all foreclosures in the United States, typically on behalf of banks that are the official mortgage loan servicers.

LPS has confirmed in the past that a federal criminal investigation has been pending, relating to a now-closed subsidiary that allegedly forged signatures on large numbers of foreclosure documents. A Reuters article in December disclosed details of LPS's operations and showed that the company faced wider legal risks than it had acknowledged. Shortly, the company should be out of many of those worries and the remaining operations are not affected by the activities of this subsidiary.

Entry strategy
For the cautious investor:
Buy the stock for 30$ or less.

For the risk-taking trader:
The June 2011 31$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 190$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 33$, or keep it until 35$ if you are more bullish in your own analysis. It is highly recommended to keep the position on check if it goes sour.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 33$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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