(This is an excerpt from an article I originally published on Seeking Alpha on February 26, 2012. Click here to read the entire piece.)
When Lender Processing Services (LPS) reported fourth quarter and full 2011 earnings on February 13, the company provided downside guidance on earnings and revenues. When the stock opened 6% lower, it sure seemed like a solid run from a steep one-day sell-off in December had finally come to an end. Instead, buyers stepped right in and took the stock HIGHER for the day. LPS closed UP 3.2% in a major reversal and is now an amazing 16.0% higher since reporting earnings.
Source: FreeStockCharts.com
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The LPS earnings conference call provides some clues revealing why investors and traders decided to buy the brief post-earnings dip. I read through the transcripts provided by Seeking Alpha and basically concluded that the company has put most of its legal and operational troubles behind it. {snip}
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In other words, LPS is positioning itself for a relatively fresh start going forward.
{snip} The current run-up in LPS’s stock is starting to reflect good outcomes for the company in 2012. So, I cannot recommend buying LPS as a severely undervalued and under-appreciated company. However, based on a forward P/E of 9.1, a price-to-sales ratio of 0.9, and healthy free cash flows, one can argue that LPS could still experience some valuation-based upside.
In the meantime, I am holding my shares with a partial hedge from covered calls. I will likely be looking to increase upside exposure on any future dips in the stock (depending on the catalyst of course).
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on February 26, 2012. Click here to read the entire piece.)
Full disclosure: long LPS