After reading Fidelity National Financial, Inc.'s (NYSE:FNF) latest earnings update (30 September 2019), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether FNF has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.
Despite a decline, did FNF underperform the long-term trend and the industry?
FNF's trailing twelve-month earnings (from 30 September 2019) of US$766m has declined by -8.8% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 6.7%, indicating the rate at which FNF is growing has slowed down. Why could this be happening? Let's examine what's occurring with margins and if the entire industry is feeling the heat.
In terms of returns from investment, Fidelity National Financial has fallen short of achieving a 20% return on equity (ROE), recording 14% instead. However, its return on assets (ROA) of 7.8% exceeds the US Insurance industry of 2.5%, indicating Fidelity National Financial has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Fidelity National Financial’s debt level, has increased over the past 3 years from 8.5% to 14%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 46% to 15% over the past 5 years.
What does this mean?
Though Fidelity National Financial's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have volatile earnings, can have many factors impacting its business. I recommend you continue to research Fidelity National Financial to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FNF’s future growth? Take a look at our free research report of analyst consensus for FNF’s outlook.
- Financial Health: Are FNF’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 30 September 2019. This may not be consistent with full year annual report figures.
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