Lender Processing Services Defaults On Guidance, More Uncertainty Ahead

(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)

In late May, I wrote two pieces on Lender Processing Services (LPS) that reflected my increasingly bearish opinion on the company: “Rethinking Lender Processing Services Amidst New Allegations and Surging Put Activity” and “Shorts Close In On LPS.” On Friday, LPS delivered the bad news that the bearish trading activity seemed to anticipate. The company significantly lowered earnings guidance and demonstrated that legal, regulatory, and market uncertainty have all increased. LPS announced at least a 29% reduction in its previous Q2 2011 earnings guidance of 79-82 cents…

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LPS also projected second quarter revenue to decline 8% from the first quarter; previous guidance was for a 5% decline)….

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In response, the stock closed down 12.6% for a fresh 2 1/2 year low. Short interest has steadily increased on LPS since March 15th. Put activity has also surged and Friday’s options action shows that put holders are in no rush to lock in profits…

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Short interest continues to march higher
Short interest continues to march higher

Source: NASDAQ.com

After retreating when negative news failed to materialize, shorts are smelling blood again
After retreating when negative news failed to materialize, shorts are smelling blood again

*Chart created using TeleChart

I decided to listen to the conference call to gauge the mood of analysts, many of whom must feel very burned now…

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In summary, LPS previously under-estimated the growing regulatory weight being applied to the foreclosure process. The company is now admitting that even more uncertainty lies ahead…

{snipped notes from conference call}

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)

Full disclosure: long LFS

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