DJSP: Time to Double Up?

 |  Includes: DJSP, FMCC, FNMA
by: Glen Bradford
DJSP Enterprises (OTC:DJSP), one of the largest providers of processing services for the mortgage and real estate industries in the United States, today had its Q1 conference call after announcing results last night. They lowered their full year guidance and since then, the stock has fallen over 25%. I want to use this opportunity to hit on the main points of the call and re-iterate a strong 'Glen Bradford' buy. I'm upgrading the stock.

I listened into the conference call. Lowered guidance in most situations comes from future problems down the pipeline. That isn't the case this time. Lowered guidance this time is just a temporary setback. Company prices should be a discount of their future earnings --- and in this case, the discrepancy between price and value appears to be fairly large right now. The main points:

Two of their largest customers are merging, and in my opinion, this is going to make Q2 and maybe the beginning of Q3 temporarily weak. That said, I would argue that DJSP is incredibly likely to continue working with this new merged entity and get the backlog of foreclosures that they have built up.

They are in the process of picking up a second REO customer in my opinion, but the time that it takes to ramp up here might push those earnings into Q1 2011 at this point.

Fannie Mae (FNM) and Freddie Mac (FRE) have been touring the facilities to make sure that DJSP has the capacity to ramp up processing.

David Stern has been getting phone calls from his customers on a daily basis to make sure that DJSP has the capacity to handle a future ramp up in capacity

There is currently a rumor circulating suggesting that foreclosure processing is being pushed back another thirty (30) days for mid-summer election purposes.

In the Q&A section, someone yelled at David Stern for not disclosing this setback through an 8-K earlier. In my opinion, taking all things into consideration, David Stern has been making the right judgment calls. The future for foreclosure processing is brighter than ever.

I want to reiterate that this is a strong buy and I'm looking for over 100% gains in the next year --- especially at these prices.

Disclosure: Glen Bradford owns DJSP