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Should Value Investors Buy First American Financial (FAF) Stock?

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, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

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 #1 (Strong Buy) and a Value grade of A. The stock is trading with P/E ratio of 11.67 right now. For comparison, its industry sports an average P/E of 24.68. 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 11.12.

We also note that FAF holds a PEG ratio of 1.06. 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 2.98. Within the past year, FAF's PEG has been as high as 1.12 and as low as 0.71, with a median of 1.01.

Finally, investors should note that FAF has a P/CF ratio of 9.62. 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. This stock's P/CF looks attractive against its industry's average P/CF of 13.52. Over the past year, FAF's P/CF has been as high as 9.89 and as low as 6.39, with a median of 9.10.

Value investors will likely look at more than just these metrics, but the above data helps show that First American Financial is likely undervalued currently. And when considering the strength of its earnings outlook, FAF sticks out at as one of the market's strongest value stocks.


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