Basic Business/Product Analysis:
CoreLogic (CLGX) is a provider of property information and analytics in the United States and Australia, with data and mortgage origination technology representing the company's core businesses. The company is a leading residential property information provider, as it aggregates proprietary information on the vast majority of residential properties, providing vital data to lenders, insurers, and banks.
Valuation:
We believe that CoreLogic's solid D&A growth and improvements in the mortgage originations, complemented by tailwinds from the recent acquisitions, support the multiple at the upper end of the spectrum for financial outsourcing companies. We, therefore, apply a EV/sales multiple of ~6.15x on a revenue base of approximately $1.8 billion, which results in the target price of $56.
Key Catalysts:
We see the following catalysts driving CoreLogic's story for the third quarter earnings:
Data business revenue growth to accelerate by 20 bps on a Q/Q basis: We estimate data growth at around 2.3% for 3Q, which is approximately a 20 bps acceleration from the previous quarter and about 10 bps above consensus. Recall that most data-related engagements at CoreLogic are sticky, which makes it fairly straightforward to model, assuming there are no major pricing shifts. While international business makes up about 15% of total revenue, its low teens growth is a meaningful boost to the overall segment, helping offset any temporary setbacks, mainly related to the originations business.
Positive impact of lower rates should already be felt in 3Q: While the first rate cut was delivered in July, i.e., the very beginning of the third quarter, we have to remember that dovish activity was telegraphed in 1Q, while CME watch predicted a rate cut as early as May. Under this timeline, we expect at least 4-5% pickup in refi and origination activity throughout 2019, with 3-4% coming for the third quarter. We are closely monitoring the Mortgage Bankers Association weekly
