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Are Fidelity National Financial Inc (FNF) Earnings Missing Out on Housing’s Bounce?

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Fidelity National Financial Inc (NYSE:FNF) will release its quarterly report next Monday, and given the recent experience in the housing market, you’d think investors would expect a title-insurance company to benefit from increased activity in home purchases. But instead, they’re expecting to see Fidelity National earnings actually fall from year-ago levels. What’s behind the drop?

Fidelity National Financial Inc (NYSE:FNF)The explanation comes from the fact that Fidelity National Financial Inc (NYSE:FNF) is more than just a title insurer. The company also owns restaurant chains including O’Charley’s, Ninety-Nine Restaurants, and Village Inn, as well as personnel management company Ceridian, employee benefits agency Digital Insurance, and automotive parts-maker Remy International. Let’s take an early look at what’s been happening with Fidelity National Financial over the past quarter and what we’re likely to see in its quarterly report.

Stats on Fidelity National Financial

Analyst EPS Estimate $0.62
Change From Year-Ago EPS (4.6%)
Revenue Estimate $2.25 billion
Change From Year-Ago Revenue 30%
Earnings Beats in Past 4 Quarters 3

Source: Yahoo! Finance.

What’s down with Fidelity National earnings this quarter?
Analysts have actually gotten more optimistic about prospects for Fidelity National Financial Inc (NYSE:FNF) earnings in recent months, boosting their June-quarter estimates by $0.03 per share and their full-year 2013 consensus by more than twice that amount. The stock, though, has fallen by about 8% since late April.

The big news for Fidelity National came in late May, when the company made a $2.9 billion bid to buy Lender Processing Services, Inc. (NYSE:LPS). The half-cash, half-stock offer would help round out Fidelity National’s core title insurance business by incorporating its technology and analytics offerings to mortgage companies and real-estate businesses, tightening its hold over the key components of the home-buying process. Fidelity National Financial Inc (NYSE:FNF) believes that between cost synergies and other benefits, the purchase should add to its earnings immediately, having identified pro forma 2012 gains of more than 11%. Yet the most interesting thing about the transaction is that it represents a round trip for Lender Processing Services, Inc. (NYSE:LPS) investors, with Fidelity National having spun off Fidelity National Information Services (NYSE:FIS), which then in turn spun off Lender Processing, only to have what’s essentially its grandparent corporation buy it back up.

Fidelity National Financial Inc (NYSE:FNF) faces a brand-new headwind from higher mortgage rates, which hurt the company’s stock in June. Because title insurance is typically a necessary part of mortgage refinancing, title insurers benefited from the explosion in refinancing activity that has accompanied rock-bottom interest rates in recent years. Yet both Fidelity National and rival First American Financial Corp (NYSE:FAF) have come under pressure as rates soared in May and June, with fears that reduced transaction volume will hurt their core title-insurance businesses.

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