Basic Business/Product Analysis
CoreLogic (NYSE: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 fourth quarter earnings:
Origination volumes to drive UWS business: The fourth quarter is the only quarter of 2019, which mostly operated under 3 rate cuts (since mid-October). As a result, we expect volumes for new purchases and originations to be strong during the quarter, with our estimate at $262 MM. We see an approximately $20 MM decline from 3Q due to seasonality (customers buy fewer homes during the holiday quarter). We are closely monitoring the Mortgage Bankers Association weekly data for refis and new purchases: while data fluctuate from one week to another, the overall trend has been on the upside.
Modeling EBITDA margin at 30.2%: CoreLogic has increasingly become a bottom line story, with the 30% EBITDA margin target now accomplished. We believe that the proper balance of cost efficiencies and SG&A allows the company to maintain the 30% target longer term, albeit we recognize that 50-100 bps deviations are possible from quarter to quarter. For 4Q, we are actually expecting a 20-30 bps expansion on a Q/Q basis due to stronger revenue from UWS.
