Barclays: Time To Buy Black Knight Financial

In a report published Monday, Barclays analyst Mark C. DeVries initiated coverage of

with an Overweight rating and a price target of $33, saying that the company is likely to generate strong growth and achieve accretive deployment of excess cash. Analyst Mark C. DeVries expects Black Knight Financial to generate high single-digit top-line growth, with "the potential for low-double digit growth." The company is likely to achieve growth through market share expansion and cross selling and cross selling its other technology offerings to existing customers. Black Knight Financial is expected to improve its EBITDA margin to 45 percent over the next two years, from about 40 percent in 2014. This could keep the margins "well above the peer group average of ~30% but only slightly above the last nine months 2014 run rate of ~43.5%," DeVries pointed out. In the report Barclays noted, "Once management reaches its ~3x debt to EBITDA target by the end of 2016, BKFS will begin to accrete cash. We forecast ~$230mm of annual net free cash flow (after scheduled debt repayments) available for accretive capital actions. We note that $200mm of cash could translate into a $1.30/shr dividend (~4.5% yield), a buyback that is ~$0.06 accretive to annual EPS, or could be used towards an accretive acquisition." DeVries estimates a ~15 percent upside in Black Knight Financial's shares, while adding that the stock valuation could improve if the company "continues to de-lever." The EPS estimate for 2015 and 2016 are $1.05 and $1.19, respectively.