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- 2013 - December - 16th -

Barclays rates EverBank, FNF as top picks

By Mark Basch, Contributing Writer

Heading into the new year, shareholders of two Jacksonville-based companies have something to look forward to, according to Barclays Capital.

Barclays last week named EverBank Financial Corp. and Fidelity National Financial Inc. as two of its "global top picks" for 2014. The firm picked 140 companies worldwide, including 58 in the Americas, for the list.

Barclays analyst Matthew Keating just started covering EverBank last month with an "overweight" rating.

"EverBank is among a select number of 'growth' financial stocks, having grown its assets, loans, and deposits at 20 percent-plus CAGRs (compound annual growth rates) since 2007," Keating said in the top picks report.

"Its recently renewed focus on its mass-affluent client base and a moderation in its mortgage banking gain on sale activity should drive more predictable earnings," he said.

Keating said EverBank's stock price is discounted, compared with its peers, but he expects that to change. He has a $21 price target for the stock.

EverBank, which went public at $10 in May 2012, reached a new high of $17.93 last Monday, the day before the Barclays report was published. It reached another high of $18.65 on Friday.

Meanwhile, Barclays analyst Mark DeVries has maintained an "overweight" rating on Fidelity.

"With an ongoing recovery in U.S. home sales and prices, and purchase activity growing as a percentage of total origination activity, Fidelity National Financial appears poised for EPS gains as the origination market returns to normalized levels," DeVries said in the top picks report.

"Furthermore, the pending acquisition of Lender Processing Services should yield significant 2014 earnings accretion and provide a short-term catalyst for FNF shares," he said.

"Given that the upside to earnings and FNF shares in a normalized origination market is considerably larger than the downside in a tough refi market, and shares are trading at less than six times our estimate for normalized EPS, we believe the stock has the potential to double and is therefore the most compelling long in our space," he said.

FNF looking at 'strategic alternatives' for investments

Going past the outlook for its main business, title insurance, Fidelity is also looking for ways to realize value from its wide range of non-title investments.

The company last week announced that it retained J.P. Morgan Securities to assist management in evaluating strategic alternatives for its investment portfolio.

The possibilities include "a tracking stock, spin-offs, sales and other potential strategic alternatives, to both monetize and highlight the value of FNF's portfolio investments for the benefit of its shareholders," Fidelity said in a news release.

None of this is any surprise because Fidelity executives, particularly Chairman Bill Foley, have talked openly about these possibilities in the past and the company has a history of completing deals like that.

Just a year ago, Fidelity took auto parts company Remy International Inc. public, while retaining a 51 percent stake.

Fidelity's investment portfolio also includes a 55 percent stake in American Blue Ribbon Holdings LLC, a family and casual dining restaurant owner that operates the O'Charley's, Ninety Nine Restaurant, Max & Erma's, Village Inn and Bakers Square chains, and an 87 percent stake in J. Alexander's LLC, an upscale dining restaurant owner that operates the J. Alexander's and Stoney River Legendary Steaks concepts.

Foley in May said Fidelity was looking to expand J. Alexander's in anticipation of an initial public offering for that business.

"The portfolio company investments have significant value which may not be fully reflected in our stock price and we believe there are attractive alternatives we can pursue to unlock the value of these investments for the benefit of FNF and our shareholders. We remain committed to continually prioritizing our resources in order to maximize total shareholder return," Foley said in last week's news release.

However, he indicated the company won't use excess cash from the title insurance business to expand the portfolio.

"Future free cash flow from core operations is expected to be used to pay down debt, invest in core operations, pay dividends and repurchase shares and not for acquisitions outside of our core business," he said.

Foley also said Fidelity is currently focused on completing its pending acquisition of Jacksonville-based Lender Processing Services. LPS shareholders are scheduled to vote on the buyout proposal at a special meeting this week.

Oppenheimer analyst also touts EverBank

Barclays wasn't the only Wall Street firm to tout EverBank recently. Oppenheimer & Co. analyst Terry McEvoy initiated coverage of the banking company with an "outperform" rating and a $21 price target.

"EverBank's steady EPS, tangible book value and balance sheet growth through different cycles are more than just fortunate luck and reflect management's long-term strategy of building a high-performing, low-risk, national bank franchise," McEvoy said in his report.

"EverBank shares have underperformed peers in 2013 given legitimate investor concerns over profitability pressure in the mortgage banking business. The stock is now meaningfully undervalued, in our view, and we feel the company's business model and growth prospects remain unique in today's environment," he said.

Atlantic Coast Financial gets coverage

A much smaller Jacksonville-based bank, Atlantic Coast Financial Corp., got its first analyst coverage in a couple of years last week as FBR Capital Markets analyst Scott Valentin issued an "outperform" rating on the stock.

The parent company of Atlantic Coast Bank has had a tumultuous year. After shareholders rejected a buyout offer in the spring, the bank's top management was overhauled and new board members were voted in.

The company addressed its capital needs this month by completing the sale of $48.3 million in stock.

Valentin said in his report that Atlantic Coast Financial is now ready to move forward.

"With the completion of a $48.3 million secondary equity offering (net proceeds of $45.2 million), Atlantic Coast is positioned to launch its turnaround plan, starting with the anticipated bulk sale of NPAs (non-performing assets) that will result in a substantially lower level of problem assets," he said.

"Following the bulk sale, several earnings-accretive catalysts with little execution risk (lower provision expense, lower risk-related operating expenses, and significant margin expansion) will drive improved operating performance. In addition, Atlantic Coast has made numerous strategic hires, enabling the company to execute its loan growth strategy," he said.

Valentin has a $5 price target for the stock, which was trading at $3.84 when he issued his report.

"As evidence of the turnaround's success becomes apparent, we expect valuation to improve," he said.

Landstar sells subsidiary, declares special dividend

Landstar System Inc. last week announced an agreement to sell its Michigan-based "supply chain subsidiaries" to XPO Logistics Inc. for $87 million in cash.

Along with the sale announcement, the Jacksonville-based trucking company also said its board of directors declared a one-time special dividend of 35 cents a share payable in January.

Landstar is not paying quarterly dividends right now. A year ago, Landstar and a number of companies accelerated dividend payments before the end of 2012 to avoid potential increases on dividend taxes as the federal government faced the fiscal cliff.

Landstar declared a special 50-cent-a-share dividend in December 2012, representing anticipated quarterly payments for 2013 and 2014.

The businesses being sold were acquired by Landstar in 2009. Those businesses included National Logistics Management, which Connecticut-based XPO described as "the largest provider of web-based expedited transportation management in North America."

XPO said NLM generated $23.4 million in transaction management fee revenue and adjusted earnings before interest, taxes, depreciation and amortization of $9.8 million in the 12 months through November 2013.

Landstar expects to realize an after-tax gain of 71 cents a share from the sale. The company reported total earnings per share of $1.87 in the first nine months this year.

"This transaction offers Landstar and its stockholders an excellent return on the two investments the company made in 2009," Landstar Chairman and CEO Henry Gerkens said in a news release.

"Over the past four years, we have come to believe that (the business) is better suited for a company store type operation rather than Landstar's core agent-based model," he said.

"Our sense is that Landstar agents were generally not successful in cross-selling these supply chain solutions to their customer base, at least to the extent originally envisioned," Wells Fargo Securities analyst Anthony Gallo said in a research note.

"We do not believe the supply chain solutions businesses are core to the Landstar strategy," he said.

Rayonier drops on 'underweight' rating

JP Morgan Securities analyst Phil Gresh began coverage of Jacksonville-based Rayonier Inc. last week with an "underweight" rating.

Rayonier's stock has dropped since its earnings report in October, and Gresh doesn't see a rebound on the horizon.

"While the shares have already declined 26 percent since the third-quarter earnings release on pricing concerns in cellulose specialties, the key driver of performance fibers profitability, we believe a recovery in the stock could take time," Gresh said in his report.

"Our primary concern is that potentially slowing demand, when combined with excess supply in a high-margin business, could lead to a multi-year pricing headwind," he said.

Rayonier continues to pay a strong dividend, at an annual rate of $1.96 a share, but Gresh is cautious about growth in dividend payments.

"While the current 4.5 percent dividend yield is the highest in the group, we see limited ability to raise the dividend near term, given a declining EPS outlook," he said.

Rayonier's stock fell as much as $1.53 to a 52-week low of $41.67 Thursday after Gresh's report. The stock had been in the upper $60s in October before the earnings report.

mbasch@baileypub.com

(904) 356-2466

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