Are Fidelity National Earnings Missing Out on Housing's Bounce?

Fidelity National Financial (NYSE: FNF  ) will release its quarterly report next Monday, and given the recent experience in the housing market, you'd think investors would expect a title-insurance company to benefit from increased activity in home purchases. But instead, they're expecting to see Fidelity National earnings actually fall from year-ago levels. What's behind the drop?

The explanation comes from the fact that Fidelity National is more than just a title insurer. The company also owns restaurant chains including O'Charley's, Ninety-Nine Restaurants, and Village Inn, as well as personnel management company Ceridian, employee benefits agency Digital Insurance, and automotive parts-maker Remy International. Let's take an early look at what's been happening with Fidelity National Financial over the past quarter and what we're likely to see in its quarterly report.

Stats on Fidelity National Financial

Analyst EPS Estimate

$0.62

Change From Year-Ago EPS

(4.6%)

Revenue Estimate

$2.25 billion

Change From Year-Ago Revenue

30%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

What's down with Fidelity National earnings this quarter?
Analysts have actually gotten more optimistic about prospects for Fidelity National earnings in recent months, boosting their June-quarter estimates by $0.03 per share and their full-year 2013 consensus by more than twice that amount. The stock, though, has fallen by about 8% since late April.

The big news for Fidelity National came in late May, when the company made a $2.9 billion bid to buy Lender Processing Services (NYSE: LPS  ) . The half-cash, half-stock offer would help round out Fidelity National's core title insurance business by incorporating its technology and analytics offerings to mortgage companies and real-estate businesses, tightening its hold over the key components of the home-buying process. Fidelity National believes that between cost synergies and other benefits, the purchase should add to its earnings immediately, having identified pro forma 2012 gains of more than 11%. Yet the most interesting thing about the transaction is that it represents a round trip for Lender Processing investors, with Fidelity National having spun off Fidelity National Information Services (NYSE: FIS  ) , which then in turn spun off Lender Processing, only to have what's essentially its grandparent corporation buy it back up.

Fidelity National faces a brand-new headwind from higher mortgage rates, which hurt the company's stock in June. Because title insurance is typically a necessary part of mortgage refinancing, title insurers benefited from the explosion in refinancing activity that has accompanied rock-bottom interest rates in recent years. Yet both Fidelity National and rival First American Financial (NYSE: FAF  ) have come under pressure as rates soared in May and June, with fears that reduced transaction volume will hurt their core title-insurance businesses.

Still, Fidelity National is on the move to continue diversifying its holdings. Just yesterday, it exercised an option to invest $4 million more in tiny Ecosphere Energy Services, bringing its ownership interest up to 39%, and Fidelity National has the option to take a majority interest for another $6 million by the end of this year. With its water treatment and recycling business working to treat and recycle billions of gallons of water for oil and gas drillers across the nation, Ecosphere is trying to tap into an industry in which bigger players like Nuverra Environmental have found great success.

In the Fidelity National earnings report, look for a progress report on the Lender Processing transaction. With such a wide set of businesses, Fidelity National demands a close look from investors trying to evaluate the various trends among the industries it covers.

The financial industry still scares many investors to death, but there's one institution worth a closer look. Read the Motley Fool's new report and find out about "The Only Big Bank Built to Last." The report is free, so click here to access it now.

Click here to add Fidelity National Financial to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2572759, ~/Articles/ArticleHandler.aspx, 10/24/2014 7:22:55 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement