Barclays Says Fidelity Has Several Catalysts That Could Create Value For Shareholders

Following are the catalysts provided by Barclays:

1. "First, we estimate a potential BKFS spin would unlock ~15 percent of hidden sum-of-the-parts value.
2. "Second, accretive deployment of the current ~$500 million HoldCo dry powder should translate into considerable EPS upside.
3. "Third, near-term core title margins could continue to beat forecasts if July's significant refi activity persists and announced headcount reductions fully fall to the bottom line.
4. "Finally, further purchase market strength could more than offset an expected commercial pullback and benefit EPS."

Barclays expects Fidelity National Financial to announce a tax-free spin of BKFS toward the end of the year; however, the distribution would likely occur in 2017.

Related Link: Keefe Bruyette & Woods Downgrades Fidelity National Finl To Market Perform, Raises PT to $39.00

The brokerage noted that the BKFS stake is worth about $11.50 per Fidelity share, implying that the earnings ex-BKFS are trading at a 2x–3x P/E discount to FAF.

According to Barclays, Fidelity's stock currently trades at the same about 14x forward P/E multiple as its closest competitor, ignoring the fact that $0.30–$0.35 of the stock's EPS comes from the fintech company BKFS, which trades at about 30x earnings.

At time of writing, shares were seen up 1.84 percent to $38.20. Barclays has a price target of $48 on the stock.

Full ratings data available on Benzinga Pro.

Did you like this article? Could it have been improved? Please email feedback@benzinga.com with the story link to let us know!