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Are Investors Undervaluing First American Financial (FAF) Right Now?

Zacks Equity Research

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One stock to keep an eye on is First American Financial (FAF). FAF is currently holding a Zacks Rank of #2 (Buy) and a Value grade of A. The stock has a Forward P/E ratio of 11.53. This compares to its industry's average Forward P/E of 23.93. Over the past 52 weeks, FAF's Forward P/E has been as high as 12.27 and as low as 9.21, with a median of 11.08.

Investors will also notice that FAF has a PEG ratio of 1.05. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. FAF's PEG compares to its industry's average PEG of 2.85. Within the past year, FAF's PEG has been as high as 1.12 and as low as 0.71, with a median of 0.99.

Finally, our model also underscores that FAF has a P/CF ratio of 9.34. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. FAF's current P/CF looks attractive when compared to its industry's average P/CF of 13.17. Over the past 52 weeks, FAF's P/CF has been as high as 10.33 and as low as 6.39, with a median of 9.08.

These are only a few of the key metrics included in First American Financial's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, FAF looks like an impressive value stock at the moment.


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