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

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·4 min read
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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


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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.


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