CoreLogic Upgarded by S&P - Analyst Blog

By Zacks | November 19, 2012 AAA

Standard & Poor's Ratings Services ("S&P") upgraded the outlook on CoreLogic Inc. (CLGX) to positive from stable, according to Reuters. The corporate credit rating of the company is maintained at 'BB'.

The outlook upgrade came on the back of S&P's expectation that CoreLogic will continue to deliver steady earnings and sustain its modest financial policies.

The rating affirmation accounts for CoreLogic's dominant foothold in the mortgage processing market as well as its continued effort to lower costs, which in turn helps it to accelerate earnings. Nevertheless, these positives are dwarfed by restricted financial institution clientele and expected lower U.S. mortgage originations in the next year.

The rating also incorporates S&P's expectation of leverage hovering in the 2.5x range and CoreLogic's cash deployment agenda. Over the last 12 months, CoreLogic paid back $114 million in debt that helped financial leverage to decline 120 basis points to 2.6x in September 2012 from 2011 end level.

S&P estimates CoreLogic's revenue to remain flat in the next three years with EBITDA margin in the mid 20% range. It expects data analytics revenue to register continuous improvement while mortgage originations business to slow down.

The rating agency also noted the company's liquidity is sufficient for meeting expenditures.  At September 2012 end, it had cash balances of $155 million, free cash flow and about $500 million available under a $550 million revolving credit facility due 2016.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. We believe the company's strong score with the credit rating agencies will help it write more business going forward.

S&P stated that the ratings could be upgraded if CoreLogic continues to post steady revenue and EBITDA in 2013. The rating agency anticipates mortgage origination to remain constrained next year. Also, CoreLogic's ability to sustain modest financial policies will drive rating upgrade.

On the flip side, if the company fails to meet expectations, the outlook might be subject to downgrade.

CoreLogic carries a Zacks #1 Rank that translates into a short-term Strong Buy rating. Lender Processing Services, Inc. (LPS), which competes with CoreLogic, carries a Zacks #3 rank, implying a short-term Hold rating.
 

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