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

Zacks Equity Research

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

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 fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company to watch right now is First American Financial (FAF). FAF is currently holding a Zacks Rank of #1 (Strong Buy) and a Value grade of A. The stock is trading with P/E ratio of 11.95 right now. For comparison, its industry sports an average P/E of 25.94. Over the past year, FAF's Forward P/E has been as high as 12.27 and as low as 9.42, with a median of 11.31.

FAF is also sporting a PEG ratio of 1.06. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. FAF's PEG compares to its industry's average PEG of 3.15. Over the past 52 weeks, FAF's PEG has been as high as 1.12 and as low as 0.76, with a median of 1.02.

Finally, investors should note that FAF has a P/CF ratio of 9.76. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. FAF's P/CF compares to its industry's average P/CF of 14.83. FAF's P/CF has been as high as 9.89 and as low as 6.39, with a median of 9.16, all within the past year.

These are just a handful of the figures considered in First American Financial's great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that FAF is an impressive value stock right now.


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