SunTrust Initiates CoreLogic At Neutral, Notes 'Reasonable' Valuation

Shares of Corelogic Inc CLGX were trading lower by 2 percent Tuesday after Andrew Jeffrey of SunTrust Robinson Humphrey initiated the stock with a Neutral rating and $42 price target.

Jeffrey noted that CoreLogic's business benefits from its "robust" data, "leading" market position, "emerging" analytics and "strong" mortgage market position. However, the analyst added that while the company maintains a "leadership" position which creates a "sustainable" competitive advantage, the stock is nevertheless fairly valued.

"The company is an effective proxy for US mortgage origination volume while offering lower-than-average longterm secular growth potential, in our opinion," Jeffrey wrote. "In other words, we believe CoreLogic's organic revenue growth is closely tied to mortgage origination volume. Whereas the company can likely outperform the broad market, underlying volatility could constrain the shares' valuation vs other leading Info Services stocks in our universe."

Jeffrey said CoreLogic has made a "concerted effort" to reduce its mortgage exposure, the biggest move of which was its acquisition of MSB/DataQuick. The acquisition added almost $100 million (7 percent of company total) of high-margin recurring revenue.

With that said, Jeffrey added that nearly 70 percent of the company's revenue is at least partially tied to mortgage activity. The analyst pointed out that a better than originally projected 2015 mortgage volume of $1.4 trillion (versus December 2014 forecast of $1.2 trillion) could prompt upside this year, 2016 is "slated to experience deceleration."

Bottom line, the stock is trading at 9.4x Jeffrey's 2016 EBITDA estimates and at a P/E ratio of 18.9x. This compares with 12.8x/22.5x for a broad set of Info Services comps – which represents a "fair" value. Finally, the analyst stated "we would likely be more constructive on a pullback" or "amidst evidence of newer technology ramping growth."