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Possible Value - Stewart Information Services Thriving as Housing Improves

July 14, 2013 | About:

Stewart Information Services Corporation (NYSE:STC) is a company that is well placed to benefit from an improving housing market as new home construction climbed to its highest level in March driven by a surge in multi-family building.

Lenders in the U.S. generally require title insurance as a condition to making a loan on real estate. This is to assure lenders of the priority of their lien position. The purchasers of the property want insurance to protect against claims that may arise against the title to the property.

Stewart a title insurance and real estate services company providing loan origination and servicing support, loss mitigation, home and personal insurance services and technology to streamline the real estate process. Clients include homebuyers and sellers, mortgage lenders and servicers and home builders.


Earnings were boosted in 2012 as the Home Affordable Refinance Program (HARP) brought forward refinancing transactions that would otherwise probably have occurred in later years. However, the HARP program has now been extended to 2015 and the increased volumes are proving resilient. In the first quarter 2013, Stewart reported total revenues of $423.7 million, an increase of $38.7 million, or 10.1 percent, from $385.0 million for the first quarter 2012. The increase was driven by the real estate market which continued to show steady improvement throughout the first quarter, particularly in existing home sales, with the seasonally-adjusted annualized sales rate increasing 9.8 percent from the same quarter in 2012, and sequentially 0.8 percent from the fourth quarter 2012. Improving median home prices accompanied this increase in volume, rising 11.2 percent from the first quarter 2012. Refinance activity also remained strong during the quarter, driven by record low interest rates.

Stewart’s net earnings of $3.2 million, or $0.15 per share represented an improvement of $15.4 million over the first quarter 2012 net loss of $12.2 million, or $0.63 loss per share.

The company remains mindful of the 2013 outlook for real estate and is concentrating on smart growth focused on simplifying and aligning operations to adapt costs quickly to transaction volumes and market conditions.

However, consensus forecasts on Yahoo Finance reflect a strong outlook with a strong upward trend (NB 2012 earnings of $109 million included almost $49 million of valuation allowances).

With significant operational leverage Stewart is well placed to benefit from a possible recovery in the housing market. Competition in the title insurance industry is intense, but Stewart has been through the cycle and may now benefit from improving macro economic factors.

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Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high risk activity and not suitable for everyone. It is strongly recommended that individuals should consult with a SEC registered investment advisor prior to making any investment decisions.

Disclosure: The author holds no positions in the above mentioned stocks

Rating: 2.3/5 (3 votes)


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