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Reasons Why Investors Should Buy First American (FAF) Stock

Zacks Equity Research

First American Financial Corporation FAF is poised for growth, benefiting from better pricing, strategic buyouts and efficient capital deployment.

The stock also carries a favorable Value Score of A and a Zacks Rank #2 (Buy). Back-tested results show that stocks with Value Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 are best investment options.

Estimates for First American have been revised upward over the past 30 days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for 2019 earnings per share has moved up 0.4% in the said time frame. The company also has a decent history of beating estimates in the trailing four quarters with the average beat being 12.20%.

Shares of First American have rallied 29.4% year to date, outperforming the industry’s increase of 12%.

First American’s return on equity was 15.2% in the trailing 12-month period, higher than the industry average of 6.7%. Return on equity is a profitability measure that identifies a company’s efficiency in utilizing its shareholders’ funds.

First American continues to benefit from improvement in insurance pricing. Purchase transactions generate more than twice the revenues of refinance transactions. Sustained solid performance is also expected from its commercial business.

The company carries out a number of acquisitions to strengthen its business. It acquired Forsythe Appraisals, RedVision and TD Service Financial, among others. In 2018 it spent $83 million in acquisitions.

Banking on strong operational performance, the insurer deploys capital effectively via dividends and share repurchases to enhance shareholder value. The company has also been hiking dividend each year. Its dividend yield of 2.9% betters the industry average of 0.4%.

The Zacks Consensus Estimate for 2019 earnings per share is pegged at $5.38, indicating increase of nearly 28.4% from the year-ago reported figure. It has a favorable Growth Score of B. This style score identifies growth prospects of a company.

Other Stocks to Consider

Investors interested in the insurance sector can also take a look at some other top-ranked stocks like Donegal Group Incorporation DGICA, Hallmark Financial Services HALL and Cincinnati Financial CINF. While Donegal Group sports a Zacks Rank #1, Hallmark Financial Services and Cincinnati Financial carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Donegal Group provides personal and commercial lines of property and casualty insurance to businesses and individuals in the Mid-Atlantic, Midwestern, New England, and southern states. The company beat estimates in the trailing four quarters by 248.34% on average.

Hallmark Financial Services operates through three segments. It underwrites, markets, distributes and services property and casualty insurance products in the United States. Its insurance products are marketed through general agents and specialty brokers. The company came up with an average four-quarter positive surprise of 95.27%.

Cincinnati Financial provides property casualty insurance products in the United States and operates in five segments. The company also offers services like commercial leasing, insurance brokerage. The company delivered an average four-quarter positive surprise of 20.79%.

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