Reasons Why Investors Should Retain First American (FAF) Stock
First American Financial Corporation FAF has been in investors' good books on the back of higher domestic residential purchase and commercial transactions, strategic buyouts, and improved escrow and tax-deferred property exchange balances.
Growth Projections
The Zacks Consensus Estimate for First American’s 2024 earnings is pegged at $5.36, indicating a 28.5% increase from the year-ago reported figure on 13% higher revenues of $7.07 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 6.20%.
Zacks Rank & Price Performance
First American currently carries a Zacks Rank #3 (Hold). The stock has gained 9.3% year to date, outperforming the industry’s rise of 3.8%.
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Return on Equity (ROE)
The insurer’s trailing 12-month return on equity is 12.1%, which compares favorably with the industry average of 6.8%. ROE reflects its efficiency in using shareholders’ funds.
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 higher 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, increases in average revenue per order, 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.
First American also relies on inorganic growth initiatives to grow its business. Its acquisition of ServiceMac started to show results as it turned cash flow positive in the first quarter and experienced revenue growth of 62%. The company completed the asset acquisition of 1031 Solutions, LLC in February 2023. The buyout will enhance FAF’s continuing efforts to aid customers with improved service in the Rocky Mountain region and surrounding markets.
Riding on higher short-term interest rates in the company’s cash and investment portfolio and improved escrow and tax-deferred property exchange balances, net investment income surged nearly three-fold year over year in the first quarter of 2023. Higher earnings on investments associated with the company’s deferred compensation plan also contributed to the increase. With the increase of short-term rates, FAF expects investment income to continue to be a tailwind for earnings in 2023.
First American’s sturdy capital position supports effective capital deployment. FAF has increased its dividend at an eight-year (2016-2023) CAGR of 9%. Its dividend yield is currently 3.6%, much higher than the industry’s average of 0.3%. The insurer also has $256 million under its share buyback authorization program.
Stocks to Consider
Some better-ranked stocks from the property and casualty insurance industry are RLI Corp. RLI, Kinsale Capital Group, Inc. KNSL and Root, Inc. ROOT. While RLI Corp. sports a Zacks Rank #1 (Strong Buy), Kinsale Capital and Root carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
RLI Corp. beat estimates in each of the last four quarters, the average being 43.50%. In the past year, RLI has gained 15.4%.
The Zacks Consensus Estimate for RLI’s 2023 and 2024 earnings has moved 3.6% and 10.9% north, respectively, in the past seven days.
Kinsale Capital has a solid track record of beating earnings estimates in each of the last trailing four quarters, the average being 14.77%. In the past year, KNSL has gained 58.4%.
The Zacks Consensus Estimate for KNSL’s 2023 and 2024 earnings per share is pegged at $10.62 and $12.89, indicating a year-over-year increase of 36.1% and 21.3%, respectively.
Root beat estimates in each of the last four quarters, the average being 18.24%. In the past year, the insurer has lost 54.4%.
The Zacks Consensus Estimate for ROOT’s 2023 and 2024 earnings per share indicates a year-over-year increase of 43.8% and 42.5%, respectively.
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RLI Corp. (RLI) : Free Stock Analysis Report
First American Financial Corporation (FAF) : Free Stock Analysis Report
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Root, Inc. (ROOT) : Free Stock Analysis Report
