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CoreLogic, Inc. Announcement of ShareRepurchase Program Sends the Right Message; Maintain Outperform

After the markets closed Thursday, CoreLogic announced that its board of directors has authorized the company to repurchase up to $250 million of shares outstanding. The authorization has no expiration date and replaces the previous authorization for up to $156 million in future repurchases. The company had previously exhausted its allotment of 10 million shares, which was granted in July 2012, by purchasing roughly 8.3 million shares during the third quarter for $197.9 million (year‐to‐date of $226.6 million). As a reminder, on the company’s third‐quarter conference call management elected to not renew its authorization, which we think some investors interpreted as a negative signal for forward earnings trends (a view we did not and do not share).

There is no change to our 2012 or 2013 estimates, but assuming the company utilizes the full program during 2013, average shares outstanding would decline from 102.1 million to roughly 95.8 million (implying slightly more than 9 million shares repurchased evenly throughout the year and using today’s closing price), thus increasing our EPS estimate of $1.51 by $0.09. CoreLogic had nearly $155 million in cash and cash equivalents (plus $22 million in marketable securities) on the balance sheet as of September 30. We also expect CoreLogic to be able to generate more than $200 million in free cash flow during 2013 if they are able to maintain their EBITDA‐to‐free cash flow conversion rate of more than 50%.

We think management’s decision underscores our view that CoreLogic has solid visibility on origination volumes moving into 2013, industry trends remain positive, and the outlook for the data and analytics business remains attractive. To that end, the mortgage market has remained favorable during the fourth quarter (especially following the November election and Hurricane Sandy) and we expect trends will persist as we move into 2013 because of continued low interest rates against improvements in home prices and foreclosure inventories. We expect the administration to continue to support the nascent recovery in the housing market with sustained low mortgage rates, government refi and purchase facilitation programs, and continued jawboning about tight mortgage lending standards. We also believe clarity on the new CFPB rules (which should come late in the first quarter of 2013 or early in the second) could help banks loosen up a bit (as they’ll at least have clarity on how to originate in the new regulatory environment).

We believe current levels are attractive for new money, particularly looking out to late
2013 and beyond, when incremental expenses on infrastructure abate and sales efforts begin to accelerate the data and analytics business. We believe owning the stock in advance of these catalysts makes sense, but we also believe the sustainable growth story will keep estimates and valuation moving in the right direction well beyond 2013. We recognize that mortgage market revisions are unlikely to generate upward revisions to the multiple, but we also believe this will serve longer‐term shareholders well, because the upward pressure on valuation was bringing with it more downside risk as momentum holders rotated out of mortgage‐centric stocks as we saw following thirdquarter results.

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