Here's Why You Should Add First American (FAF) to Your Kitty

Zacks Equity Research
4 min read
0
In this article:

First American Financial Corporation FAF has been favored by investors on the back of higher direct premium and escrow fees, strategic acquisitions and prudent capital deployment.

Earnings Surprise History

First American has a solid track record of beating earnings estimates in five of the last seven quarters.

Zacks Rank

First American currently carries a Zacks Rank #2 (Buy).

Return on Equity

The insurer’s trailing 12-month return on equity (ROE) was 15.6%, which expanded 130 basis points year over year and compared favorably with the industry average of 5.7%. ROE reflects its efficiency in using its shareholders’ funds.

Business Tailwinds

First American has been experiencing consistent revenue growth over the past several years on the back of solid performance across its Title Insurance and Services and Specialty Insurance segments.

A higher number of closed orders coupled with an increase in the average revenue per order, solid performance of the commercial market, and improved direct premium and escrow fees from favorable refinance are likely to drive top-line growth. Higher demand for title information products in data and analytics and commercial and loss mitigation business lines should also add to the upside.

In line with its strategic initiatives, First American actively pursues acquisitions to boost and expand its core business. The buyouts are likely to expand the insurer’s title insurance business and settlement and escrow services, enhance its capabilities to better serve customers as well as strengthen its international presence,   in turn, contributing to the top-line growth of FAF.

First American boasts a strong liquidity position to enhance operating leverage, implying that its cash reserves are sufficient to meet debt obligations.

First American has increased dividends at an eight-year CAGR (2015-2022) of 9.3%. The dividend yield is 3.4%, better than the industry average of 0.4%, making the stock an attractive pick for yield-seeking investors.

The board has increased the size of its share repurchase plan from $300 million to $600 million. FAF bought back shares for $108 million in the first quarter of 2022 and other shares for $102 million in April 2022. These initiatives reflect the insurer’s solid financial condition and long-standing commitment to return capital to stockholders.

The Zacks Consensus Estimate for 2022 has moved 0.7% north, respectively in the past 60 days. This should instill investors' confidence in the stock.

The stock has lost 9.6% in the past year compared with the industry’s decrease of 2.7%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Other Stocks to Consider

Some other top-ranked stocks from the property and casualty insurance sector are HCI Group, Inc. HCI, W.R. Berkley Corporation WRB and American Financial Group, Inc. AFG. While HCI Group and W.R. Berkley currently sport a Zacks Rank #1 (Strong Buy), American Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for HCI Group’s 2022 and 2023 earnings has moved 33.3% and 40% north, respectively, in the past 30 days. In the past year, HCI Group stock has lost 13.7%.

The Zacks Consensus Estimate for 2022 and 2023 earnings per share indicates year-over-year increases of 280.9% and 75%, respectively.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.08%. In the past year, W.R. Berkley's stock has increased 26.6%.

The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 6.3% and 6.2% north, respectively, in the past 30 days.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 41.72%. In the past year, American Financial has rallied 0.6%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 9.8% and 6.9% north, respectively, 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
 
HCI Group, Inc. (HCI) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Advertisement

Recommended Stories

  • Dow Jones Falls As Donald Trump Stock Craters; Cathie Wood Buys This Stock Amid 51% Plunge

    The Dow Jones fell as Elon Musk made a Tesla move. The Donald Trump stock sank on the stock market today. Cathie Wood bought a diving stock.

  • Trump Media stock tanks on move to issue millions of shares

    Trump Media stock slid as much as 16% on Monday after the parent company of Donald Trump's social media platform, Truth Social, filed to issue more than 21 million shares.

  • 4 Oversold Stocks to Buy Right Now

    Here are four stocks to buy now that could offer investors upside in the short and long term.

  • Wall Street Selloff Goes Global Amid US Rate Angst: Markets Wrap

    (Bloomberg) -- A selloff on Wall Street went global as investors grappled with the threat of higher-for-longer interest rates, China’s sluggish economy and an Israeli counter-strike. Most Read from BloombergBeyond the Ivies: Surprise Winners in the List of Colleges With the Highest ROIIran’s Attack on Israel Sparks Race to Avert a Full-Blown WarApple Faces Worst iPhone Slump Since Covid as Rivals RiseTesla Executive Baglino Leaves as Musk Loses Another Top DeputyIsrael Versus Iran — What All-Out

  • Nvidia Reveals 8 'Secrets' For When To Sell Stocks. No. 2 Is Key.

    As top growth stocks like Nvidia test key moving averages, keep in mind these proven rules for when to sell stocks.

  • Elon Musk Agrees With Jamie Dimon's Warning Of Political Polarization 'Creating Risks That Could Eclipse Anything Since World War II'

    JP Morgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon's annual shareholder letter is a moment investors await to understand the thinking of one of the world's most influential bankers. While there has been speculation of Dimon entering politics, with him even gaining the support of billionaire hedge fund manager Bill Ackman to run for president, JP Morgan shared in a statement that "Jamie has no plans to run for office" and that "he is very happy in his current role." That has not stopped him from oc

  • Tesla layoffs hit high performers, some departments slashed, sources say

    Tesla management told employees Monday that the recent layoffs -- which gutted some departments by 20% and even hit high performers -- were largely due to poor financial performance, a source familiar with the matter told TechCrunch. The layoffs were announced to staff just a week before Tesla is scheduled to report its first-quarter earnings. The move comes as Tesla has seen its profit margin narrow over the past several quarters, the result of an EV price war that has persisted for at least a year.

  • 1 Stock I Wouldn't Touch With a 10-Foot Pole

    I am a dividend investor, and I prize dividend consistency. I just can't trust what this high-yield income stock says about its dividend.

  • Not-So-Happy Meal: $20 Wages Has Burger Joints In This State All Heated

    California fast-food employees started earning a minimum of $20 an hour in April. Thanks to a new law, which went into effect earlier this month, California chain restaurants with at least 60 locations nationwide have to pay their employees more. For smaller restaurants, the minimum wage continues to be the statewide bottom of $16 an hour. The largest publicly-traded fast-food companies include McDonald’s Corp (NYSE:MCD); Starbucks Corp (NASDAQ:SBUX); Yum! Brands, Inc. (NYSE:YUM), which owns Tac

  • Xiaomi’s Success Means More Trouble for Battered China EV Stocks

    (Bloomberg) -- Xiaomi Corp.’s roaring entry into the electric vehicle market is dimming the recovery outlook for China’s beaten down auto startups.Most Read from BloombergBeyond the Ivies: Surprise Winners in the List of Colleges With the Highest ROIIran’s Attack on Israel Sparks Race to Avert a Full-Blown WarApple Faces Worst iPhone Slump Since Covid as Rivals RiseTesla Executive Baglino Leaves as Musk Loses Another Top DeputyIsrael Versus Iran — What All-Out War Could Look LikeHype around the