Expecting More Upside From CoreLogic

| About: CoreLogic, INC. (CLGX)
This article is now exclusive for PRO subscribers.

CoreLogic (NYSE:CLGX) is a financial information and analytics firm that supplies U.S. real estate, mortgage, consumer and specialized business data to its clients. Clients include commercial banks, mortgage lenders and brokers, investment banks, fixed-income investors, real estate agents, property and casualty insurance companies, and title insurance firms. CoreLogic organizes its business lines into three segments: Mortgage Origination Services (MOS), Data and Analytics (D&A), and Default Services (NYSE:DS). MOS revenues and revenue growth are the highest of the three segments.

Shares of CoreLogic had traded up steadily for over a year before stumbling recently. After hitting bottom at $8 in August 2011, CLGX hit $28 in September of this year. Not surprisingly, several insiders had begun to take profits in the stock last summer as they traded above $23. Insiders selling into strength is expected, however, and therefore unremarkable.

What is remarkable was the sudden buying cluster that emerged after CLGX plunged back down to $23 on October 25th - the day after Q3 financials were released. Four executives immediately bought a total of $502,378 of CGLX at an average price of $22.84. Granted, the percentage increase in holdings of the purchases was only significant for Director Douglas Curling, who boosted his stake by over 67% with his $227k buy. The other three only increased their holdings by 1.2% to 3.6%.

But the fact that four insiders would all agree that buying a stock that - despite the near-term dip - was still up over 100% in the past year is not expected, and therefore more significant. This averaging up the price of one's holdings shows confidence from the buyer that new highs are likely.

Housing foundation required

CoreLogic's fundamentals seem to concur. Revenues in Q3 increased 17.6%, to $409.8 million. Mortgage Origination Services revenues increased 35.6%, to $175.1 million "as a result of increased demand for credit and tax services and flood certifications." Adjusted EPS of 45 cents beat expectations by 8 cents.

This was the third straight quarter of strong top-line increases, which seems to confirm management's assertion that there is "an improving outlook for the housing market." That sentiment meshes with an update I heard last August on the Q2 earnings call for Two Harbors (NYSE:TWO), as well as generally positive housing stats as of late. Considering the nature of CoreLogic's business, a belief in a recovering housing market is important to support a bullish opinion on CLGX.

CoreLogic's management felt confident enough about the housing market and its operations to have raised full-year guidance significantly after Q3 results. The midpoint of 2012 revenue guidance increased 4.4%, to $1.53 billion. EBITDA expectations rose 14%, to $440 million, and EPS guidance increased 25%, to a range of $1.45 to $1.50.

CLGX now trades for a not-too-pricey 18 times this year's EPS expectations after already showing life again after its late October fall. But the forward PE on CLGX right now is not the primary factor as far as I'm concerned. In the end, whether insiders - and now me - are proven correct to have bought into CLGX's pullback will come down to housing activity next year.

If the grudging improvement in household formation continues to be positive, estimates and valuations for CLGX should both increase. The opposite is true as well, of course. And, unfortunately, the action (or non action) of a U.S. Congress that is still not functionally proven could play a large part in deciding the fate of economic activity in 2013. That's a variable that neither analysts nor insiders can predict.

I like the odds of the grudging recovery in the U.S. continuing, however, and view the downside of betting on a more optimistic outcome for next year's economic (and housing) activity worthwhile. Technically, CLGX has also just broken back above its 50-day moving average, and appears to be attempting another uptrend.

Not so surprisingly, two insiders have already taken some profits again as their stock trades back up near old highs. But again, that's expected, and therefore less significant. The buying cluster into recent weakness remains the most important takeaway from the executive suite. That cadre didn't likely bother buying into their stock last month expecting a mere few bucks upside. I certainly didn't.

Disclosure: I am long CLGX, TWO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Clients of Insider Asset Management llc may also be long CLGX and TWO.