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Fidelity National a Strong Sell on Sluggish Title Insurance

Zacks Equity Research

On Aug 21, 2014, Zacks Investment Research downgraded Fidelity National Financial Inc. (FNF) by a notch to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Fidelity Nationalhas been experiencing downward estimate revisions due to sluggish second-quarter 2013 results and a weak outlook for the upcoming quarters. This surety and title insurer also failed to gain momentum from the announcement of the sale of Comdata Inc. to FleetCor Technologies Inc. (FLT) as it will be a stock-for-stock merger with absence of immediate cash generation.

On Jul 30, Fidelity National reported second-quarter 2014 operating earnings per share of 47 cents, which fell short ofthe Zacks Consensus Estimate and the prior-year figure by 4.1% and 29.9%, respectively.

A year-over-year increase of 4.3% in the top line was more than offset by a 6.6% rise in operating expenses. Notably, title insurance premiums, which is a primary revenue driver, fell 14.9% during the quarter along with lower title orders. As well, interest and investment income was lower than expected. The downsides are also evident from the absence of any major growth catalyst going forward.

Overall, weak fundamental growth prospects amid significant underwriting and investment risks have failed to enlist any positive investor sentiment so far.

Meanwhile, the Zacks Consensus Estimate for 2014 and 2015 declined 6.9% and 8.2% to $1.75 and $2.13 per share, respectively, in the last 30 days. There was no upward estimate revision for both the years over the same time frame. On a year-over-year basis, earnings are expected to sink 19.5% in 2014.

Moreover, the Most Accurate estimate for Fidelity National’s 2015 earnings currently stand at $2.11 a share, resulting in an Earnings ESP of -0.9%. This indicates a likely earnings miss for the next year as well.

Insurers That Warrant a Look

While we prefer to avoid Fidelity Nationalfor the time being, one could consider better-ranked insurers like National General Holdings Corp. (NGHC), Mercury General Corp. (MCY) and Endurance Specialty Holdings Ltd. (ENH). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on ENH
Read the Full Research Report on MCY
Read the Full Research Report on FNF
Read the Full Research Report on FLT
Read the Full Research Report on NGHC


Zacks Investment Research