This article is part of our Rising Star Portfolios series. You can read about the Dada Portfolio here.
This morning, Lender Processing Services (NYSE: LPS), a major provider of back-end support for the mortgage industry, reported a 5% rise in revenue for the fourth quarter. Earnings declined 6%, while earnings per share rose 1%, to $0.78 per share.
If you want to adjust those earnings for a "non-recurring accrual adjustment in our Loan Transaction Services segment" and the fairly expensive departure of LPS' former CFO -- as the company does -- you end up with a 12% rise in earnings per share.
The mortgage and foreclosure booms in recent years have been a boon for LPS. And there is a large backlog of various fees and foreclosures coming down the pike over the next few years as a result of a difficult economy, unaffordable mortgages, and junk fees.
Still, revelations about shoddy recordkeeping in the housing market and the possible enormity of the foreclosure fraud scandal have the potential to throw a wrench in the booming market for foreclosure processing. Bears point to LPS' high leverage and legal exposure to alleged robo-signing and fraudulent foreclosure practices. There are signs of trouble as judges are increasingly pushing back against some of some of the notorious deficiencies by servicers, and LPS' CEO described the current environment as "sluggish."
It'll be interesting to see how this political and legal struggle between the mortgage industry and servicers such as JPMorgan (NYSE: JPM), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and Citigroup (NYSE: C) on the one hand, and homeowners and state attorneys general on the other.
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