Reasons Why First American (FAF) Stock Is an Attractive Pick
First American Financial Corporation FAF has been in investors' good books on the back of higher earnings on investments, strategic buyouts, stronger direct premium and escrow fees and improved agent premiums.
Growth Projections
The Zacks Consensus Estimate for First American’s 2024 earnings is pegged at $5.43 per share, indicating a 25.56% increase from the year-ago reported figure on 8.9% higher revenues of $6.86 billion.
Earnings Surprise History
First American has a decent earnings surprise history. It beat estimates in three of the last four quarters and missed in one, with the average being 10.95%.
Zacks Rank & Price Performance
First American currently carries a Zacks Rank #2 (Buy). The stock has gained 20.4% in the past year compared with the industry’s rise of 24.9%.
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Style Score
First American has a VGM Score of B. VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum.
Back-tested results show that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best opportunities in the value investing space.
Business Tailwinds
The Title Insurance and Services business of First American is expected to gain momentum from improved agent premiums, higher direct premiums and escrow fees, increased domestic residential purchase and commercial transactions.
Higher operating revenues in the home warranty business and stronger net realized investment gain in both the home warranty and property and casualty businesses should drive the Specialty Insurance business.
A higher number of closed orders, an increase in average revenue per order, a solid performance of the commercial market, as well as improved direct premium and escrow fees from favorable refinance are likely to drive revenue growth. Higher demand for title information products in data and analytics and commercial and loss mitigation business lines should also add to the upside.
FAF has been focusing on strategic initiatives to strengthen its product offerings and core business. The company pursued small title agency buyouts in the regions that it identifies as growth markets. First American completed the assets acquisition of 1,031 Solutions, LLC in February 2023. The buyout will enhance the company’s continuing efforts to aid the customers with improved service in the Rocky Mountain region and surrounding markets. The deal will also provide new growth opportunities to the insurer.
Net investment income has been an important component of the company’s top-line growth. Net investment income surged nearly three-fold in the first half of 2023, riding on higher short-term interest rates in the company’s cash and investment portfolio and improved escrow and tax-deferred property exchange balances. Higher earnings on investments associated with the company’s deferred compensation plan also contributed to the increase.
Given a strong operational performance, the company engages in shareholder-friendly moves. In August 2023, First American raised its dividend by 2%. The insurer’s quarterly dividend payment witnessed a seven-year (2016-2023) CAGR of 9.3%. These make the stock an attractive pick for yield-seeking investors.
The company also engages in share buybacks. The board has increased the size of its share repurchase plan from $300 million to $600 million. FAF maintains a stock repurchase plan with authorization up to $400 million, of which $241.2 million remained as of Jun 30, 2023.
Attractive Valuation
First American shares are trading at a price-to-book value multiple of 1.3, lower than the industry average of 1.4. It also has an impressive Value Score of A. This style score helps find the most attractive value stocks.
Other Stocks to Consider
Some other top-ranked stocks from the property and casualty insurance industry are Arch Capital Group Ltd. ACGL, Axis Capital Holdings Limited AXS and Cincinnati Financial Corporation CINF. While Arch Capital and Axis Capital sport a Zacks Rank #1 each, Cincinnati Financial carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arch Capital has a decent history of delivering earnings surprises in the last four quarters, the average being 26.83%. In the past year, ACGL has gained 67.6%.
The Zacks Consensus Estimate for ACGL’s 2023 and 2024 earnings has moved 7.6% and 6.5% north, respectively, in the past 60 days, reflecting analysts’ optimism.
Axis Capital has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 9.75%. In the past year, AXS has gained 5.6%.
The Zacks Consensus Estimate for AXS’ 2023 and 2024 earnings per share is pegged at $8.41 and $9.31, indicating a year-over-year increase of 44.7% and 10.7%, respectively.
Cincinnati Financial has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 25.25%. In the past year, CINF has gained 7%.
The Zacks Consensus Estimate for CINF’s 2023 and 2024 earnings per share is pegged at $5 and $5.88, indicating a year-over-year increase of 17.9% and 17.6%, respectively.
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Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report
Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
First American Financial Corporation (FAF) : Free Stock Analysis Report
Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
