Yahoo Finance Here's Why Investing in First American (FAF) is a Prudent Move
First American Financial Corporation FAF has been favored by investors on the back of its higher direct premium and escrow fees, solid cash position, effective capital deployment and strategic acquisitions.
Growth Projections
The Zacks Consensus Estimate for 2021 earnings per share is pegged at $7.53, indicating a year-over-year increase of 38.1%.
Estimate Revision
The Zacks Consensus Estimate for 2021 and 2022 has moved 1.5% and 2.5% north, respectively in the past 30 days. This should instill investors' confidence in the stock.
Earnings Surprise History
First American has a decent earnings surprise history. It beat estimates in each of the last four quarters, with the average being 29.19%.
Zacks Rank & Price Performance
First American currently carries a Zacks Rank #1 (Strong Buy). The stock has rallied 54.3% year to date, outperforming the industry’s increase of 8.7%.
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Return on Equity (ROE)
The company’s trailing 12-month return on equity (ROE) of 17.2% reflects its growth potential. It compares favorably with the industry average of 5.6%. ROE reflects its efficiency in using its shareholders’ funds.
Style Score
It has an impressive Value Score of A, which reflects the attractive valuation of the stock.
Business Tailwinds
The Title Insurance and Services business 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 gains in both the home warranty and property and casualty businesses should drive the Specialty Insurance business.
First American has a robust acquisition pipeline and focuses on strategic initiatives to strengthen its product offerings and focus on its core business. The insurer continues to make significant investments in technology across its major businesses to enhance customer experience through digital solutions.
The majority of First American's business is dependent on activity in the real estate and mortgage markets. Increased mortgage financing availability has a positive effect on residential real estate activity, which typically boosts the top line of the title insurer.
In October 2021, the insurer acquired ServiceMac to support the mortgage industry and expand product innovation efforts. The deal will enhance First American’s ability to provide lenders and servicers with end-to-end mortgage, settlement, post-closing services and servicing-related products and solutions.
First American boasts a strong liquidity position to enhance operating leverage. The title insurer expects to use cash on hand to fund acquisitions in the core title and settlement business in adjacent markets, invest in innovative solutions such as Endpoint and return capital to shareholders.
In August 2021, the board hiked its quarterly cash dividend by 11% and increased the size of its share repurchase plan from $300 million to $600 million. With the increase in authorization, the insurer has $472 million remaining under the share repurchase authorization. The dividend hike and increase of repurchase authorization reflects the insurer’s strong financial condition, liquidity, and long-standing commitment to return capital to stockholders.
Other Stocks to Consider
Some other top-ranked stocks from the property and casualty insurance sector are Kinsale Capital KNSL, Cincinnati Financial Corporation CINF and Berkshire Hathaway (BRK.B). While are Kinsale Capital sports a Zacks Rank #1, Cincinnati Financial and Berkshire carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average beat being 37.63%. In the past year, Kinsale Capital has lost 14.7%. The Zacks Consensus Estimate for 2021 and 2022 has moved 15.2% and 11.7% north, respectively, in the past 30 days.
Higher submission activity from brokers across most lines of business, higher rates on bound accounts, favorable market conditions, and high retention rates arising from contract renewals are likely to drive Kinsale Capital’s premium income.
Cincinnati Financial surpassed estimates in each of the last four quarters, the average earnings surprise being 40.05%. In the past year, Cincinnati Financial has rallied 53.6%. The Zacks Consensus Estimate for 2021 and 2022 has moved 0.9% and 5% north, respectively, in the past 30 days.
Cincinnati Financial is well poised to gain from premium growth initiatives, price increases and a higher level of insured exposures.
The bottom line of Berkshire Hathaway surpassed estimates in two of the last four quarters and missed the same in the other two, the average being 5.53%. In the past year, Berkshire Hathaway has rallied 23.6%. The Zacks Consensus Estimate for 2021 and 2022 has moved 0.08% and 1.5% north, respectively, in the past 30 days.
Berkshire Hathaway is expected to benefit from its growing Insurance business, Manufacturing, Service and Retailing, Finance and Financial Products segments, and strategic acquisitions.
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Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
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Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report
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