Does First American Financial Corporation’s (NYSE:FAF) 12% Earnings Growth Reflect The Long-Term Trend?
Investors with a long-term horizong may find it valuable to assess First American Financial Corporation’s (NYSE:FAF) earnings trend over time and against its industry benchmark as opposed to simply looking at a sincle earnings announcement at one point in time. Below is my commentary, albiet very simple and high-level, on how First American Financial is currently performing.
Check out our latest analysis for First American Financial
Commentary On FAF’s Past Performance
FAF’s trailing twelve-month earnings (from 31 December 2018) of US$474m has jumped 12% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 20%, indicating the rate at which FAF is growing has slowed down. To understand what’s happening, let’s look at what’s transpiring with margins and if the entire industry is facing the same headwind.
In terms of returns from investment, First American Financial has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. However, its return on assets (ROA) of 4.8% exceeds the US Insurance industry of 2.2%, indicating First American Financial has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for First American Financial’s debt level, has declined over the past 3 years from 13% to 12%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 13% to 22% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. While First American Financial has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. You should continue to research First American Financial to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for FAF’s future growth? Take a look at our free research report of analyst consensus for FAF’s outlook.
Financial Health: Are FAF’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2018. This may not be consistent with full year annual report figures.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
