U.S. markets closed
  • S&P Futures

    4,222.25
    +12.25 (+0.29%)
     
  • Dow Futures

    33,351.00
    +91.00 (+0.27%)
     
  • Nasdaq Futures

    13,451.25
    +59.25 (+0.44%)
     
  • Russell 2000 Futures

    1,975.30
    +5.80 (+0.29%)
     
  • Crude Oil

    91.56
    -0.37 (-0.40%)
     
  • Gold

    1,806.10
    -7.60 (-0.42%)
     
  • Silver

    20.57
    -0.17 (-0.83%)
     
  • EUR/USD

    1.0299
    -0.0003 (-0.03%)
     
  • 10-Yr Bond

    2.7860
    -0.0110 (-0.39%)
     
  • Vix

    19.74
    -2.03 (-9.32%)
     
  • GBP/USD

    1.2206
    -0.0012 (-0.10%)
     
  • USD/JPY

    132.8670
    -0.0060 (-0.00%)
     
  • BTC-USD

    24,100.22
    +1,243.77 (+5.44%)
     
  • CMC Crypto 200

    570.02
    +38.80 (+7.30%)
     
  • FTSE 100

    7,507.11
    +18.96 (+0.25%)
     
  • Nikkei 225

    27,819.33
    -180.63 (-0.65%)
     

First American (FAF) Stock Up 22% in a Year: More Room to Run?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Shares of First American Financial Corporation FAF have gained 22% in a year compared with the industry's increase of 16.2%. The Zacks S&P 500 composite has rallied 12.2% in the said time frame. With a market capitalization of $7.59 billion, the average volume of shares traded in the last three months was 0.6 million.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

The rally was largely driven by higher direct premium and escrow fees, solid cash position and strategic acquisitions.

The insurer has a decent earnings surprise history. Its bottom line beat estimates in each of the last four quarters, the average being 29.4%.

First American has a favorable VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

Will the Bull Run Continue?

Estimates for 2022 have moved up nearly 0.3% in the past 60 days, reflecting investors’ optimism.

The Zacks Consensus Estimate for 2023 earnings per share is pegged at $7.20, indicating a year-over-year increase of nearly 10.8%.

The Title Insurance and Services segment of the insurer accounted for the lion’s share of revenues in 2021. Higher direct premiums and escrow fees, higher average deal size in commercial business and the impact of strong home price appreciation on residential purchase transactions as well as the acquisition of ServiceMac are expected to drive the performance of this segment.

Higher operating revenues in the home warranty business should drive the Specialty Insurance business.

Per the strategic initiatives, First American actively pursues acquisitions to boost and expand its core business. In the first quarter of 2022, First American inked a deal to acquire Mother Lode Holding Company in an effort to enhance its capabilities to better serve customers across the strongest housing markets as well as strengthen its presence in the United States.

The insurer’s trailing 12-month return on equity (ROE) was 16.9%, which compared favorably with the year-ago figure of 13.4% and the industry average of 5.6%. ROE reflects its efficiency in using its shareholders’ funds.

First American boasts a healthy balance sheet along with an impressive solvency level, which implies that its cash reserves are sufficient to meet debt obligations. Cash flow from operations was a record $1.2 billion in 2021, up 12% year over year.

Banking on solid cash flow, First American has increased dividends at an eight-year CAGR (2015-2022) of 9.3%. The dividend yield is 2.9%, better than the industry average of 0.3%, making the stock an attractive pick for yield-seeking investors.

First American currently carries a Zacks Rank #2 (Buy) and has an impressive Value Score of A. The stock remains undervalued at the current level. FAF currently has a trailing 12-month price to book value ratio of 1.32, lower than the industry average of 1.4.

Back-tested results show that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.

Other Stocks to Consider

Some other top-ranked property and casualty insurers include Arch Capital Group ACGL, W.R. Berkley WRB and American Financial Group AFG. While Arch Capital sports a Zacks Rank #1, American Financial and W.R. Berkley carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arch Capital’s earnings surpassed estimates in each of the last four quarters, the average beat being 35.84%. In the past year, ACGL has rallied 32.4%.

The Zacks Consensus Estimate for 2022 and 2023 earnings has moved 2.9% and 1.6% north, respectively, in the past seven days. Arch Capital’s expected long-term earnings growth rate is pegged at 10%.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.53%. In the past year, WRB has rallied 32.6%.

The Zacks Consensus Estimate for 2022 and 2023 earnings has moved 4.9% and 1.5% north, respectively, in the past 30 days. WRB’s expected long-term earnings growth rate is pegged at 9%.

The bottom line of American Financial surpassed earnings estimates in each of the last four quarters, the average being 39.58%. In the past year, the insurer has rallied 26.4%.

The Zacks Consensus Estimate for American Financial’s 2022 earnings has moved 0.5% north in the past seven days.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

W.R. Berkley Corporation (WRB) : Free Stock Analysis Report

First American Financial Corporation (FAF) : Free Stock Analysis Report

American Financial Group, Inc. (AFG) : Free Stock Analysis Report

Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research