Why I'm Long Realogy

by: Random Walker

Realogy Corporation (NYSE:H), which was recently spun-off from Cendant (CD), is the largest listed provider real estate and relocation services in the United States and internationally. It operates in four segments: Real Estate Franchise Services, Company Owned Real Estate Brokerage Services, Relocation Services, and Title and Settlement Services.

A few days ago I acquired a long position in Realogy @ $ 20.60 and feel there is a simple and compelling long case:

1. Realogy is the largest business of its kind and the only listed one. I believe it is about 3 times larger than its closest competitor Homeservices of America which happens to be owned by Warren Buffet who has called it "a gem".
2. Management has a large material interest in the firm. Henry Silverman, who was the CEO of Cendant prior to the spin-off, chose to go with Realogy. I believe this speaks volumes for who people who are "in the know" chose to align themselves with.
3. Management has stated that they might buy back shares and also that once an appropriate amount of time has passed since the spin-off they will "consider all offers" to buy the firm.
4. The current slowdown in the real estate market provides an excellent opportunity for Realogy to consolidate and build on its leading position in the market.
5. Post spin-off dynamics combined with all the negative publicity about the state of real estate industry have put pressure on Realogy's shareprice and provided a buying opportunity at depressed prices.

It seems to me that as there are no other similar listed firms, the market is not entirely sure how to price Realogy. However one has to keep in mind that (unlike homebuilders) Realogy is a services business that carries no inventory, is not at all capital intensive and makes money on either the buy or sell side.

Keeping the above in mind, the fact that the real estate market will rebound at some stage and the possibility that Realogy could be taken over I am happy to hold on, and even add to my position in the long term.

H 2-month chart: