First American Financial FAF is poised to grow, given the increased demand among millennials for first-time home purchases, an improved rate environment and strength in commercial business.
FAF has a decent earnings surprise history. It surpassed estimates in three of the trailing four quarters and missed in one.
Zacks Rank & Price Performance
First American currently carries a Zacks Rank #3 (Hold). The stock has declined 34.3% year to date compared with the industry’s decline of 2.3%.
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Northbound Estimate Revisions
The Zacks Consensus Estimate for 2022 has moved 3.4% north in the past 30 days, reflecting analysts’ optimism.
Return on Equity
Return on equity, a measure of profitability reflecting how efficiently the company is utilizing its shareholders’ value, improved to 16.9% in 2021 from 9% in 2014. FAF aims 12-14% return on equity over the long term.
First American remains well poised to capitalize on the increased demand among millennials for first-time home purchases. Growing direct premiums, escrow fees and title agent premiums should continue to drive the top line.
The company expects solid housing demand, robust economy and labor markets to continue to drive strong home price appreciation. It also expects modest growth in purchase revenues for the remainder of 2022. Riding on strong fundamentals in the commercial market, First American expects the commercial business to continue providing improved performance in the second half of 2022.
Strategic initiatives to strengthen its product offerings and intensify its focus on its core business bode well.
Investment income within the Title Insurance and Services segment will continue to gain from higher average invested balances. Based on the improving interest rate environment, FAF anticipates annualized investment income to increase to $200 million by 2022 end, up from $150 million expected earlier.
Given a strong operational performance, the company is engaging in shareholder-friendly moves.
Effective Capital Deployment
First American has a solid track record of dividend increase, with the metric witnessing an eight-year (2015-2022) CAGR of 9.6%. FAF’s dividend yield of 3.6% compares favorably with the industry average of 0.4%.
In June 2022, FAF’s board of directors approved a new share repurchase plan, authorizing the repurchase of up to $400 million of shares, of which $392 million remained as of Jun 30, 2022.
Stocks to Consider
Some better-ranked stocks from the insurance industry are Berkshire Hathaway (BRK.B), American Financial Group AFG and W.R. Berkley Corporation WRB, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Berkshire Hathaway’s 2022 and 2023 earnings implies 14.4% and 5.9% year-over-year growth, respectively. The average four-quarter surprise is 17.55%.
The Zacks Consensus Estimate for BRK.B’s 2022 and 2023 earnings has moved 7.6% and 8.8% north, respectively, in the past 60 days. Year to date, shares of BRK.B have lost 6.9%.
American Financial’s earnings surpassed estimates in the last four quarters, the average earnings surprise being 37.09%.
The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 1% each north, respectively, in the past 30 days. Year to date, shares of AFG have lost 5.4%.
The Zacks Consensus Estimate for W.R. Berkley’s 2022 and 2023 earnings implies 20.6% and 10.4% year-over-year growth, respectively. The average four-quarter surprise is 29.95%.
The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 8.8% and 6.8% north in the past 60 days, respectively. Year to date, shares of WRB have rallied 21.5%.
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