A month has gone by since the last earnings report for First American Financial (FAF Quick QuoteFAF - Free Report) . Shares have lost about 7.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is First American Financial due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

First American Financial Q2 Earnings & Revenues Beat

First American Financial Corporation reported second-quarter 2020 operating income per share of $1.05, which outpaced the Zacks Consensus Estimate by 26.5%. However, the bottom line declined 33.5% year over year.

The company’s results reflect improved segmental revenues, partially offset by increase in expenses.

Behind the Headlines

Operating revenues of $1.6 billion increased 7.3% year over year on the back of higher agent premiums and information and other revenues. Moreover, the top-line figure beat the Zacks Consensus Estimate by nearly 5.6%.

Net investment income however decreased 24.8% to $58.4 million.

Total expense of $1.4 billion increased 9% year over year due to higher personnel costs, premiums retained by agents, provision for policy losses and other claims, depreciation and amortization, interest, and other operating expenses.

Segment Results

Title Insurance and Services: Total revenues increased 7.1% over year to $1.5 billion. The upside came on the back of improved agent premiums and higher information and other revenues, which can be primarily attributed to the recent acquisition of Docutech and the growth in mortgage originations that led to higher demand for the company’s title information products. However, pretax margin contracted 70 basis points (bps) year over year to 16.3%.

Title open orders increased 18.6% to 351,300 while Title closed orders increased 29.5% year over year to 254,500, driven by a 160% surge in refinance orders.

Average revenue per order decreased 21.3% over year to $7,400.

Average revenue per direct title order declined to $1,950, primarily due to the shift in order mix to lower-premium residential refinance transactions.

Average revenue per order for purchase transactions increased 0.8% while average revenue per order for commercial transactions decreased 21.2%.

Specialty Insurance: Total revenues increased 8.5% year over year to $133.5 million, driven by higher direct premiums and escrow fees. However, pretax margin contracted 730 bps to 5.5%.

Financial Update

First American exited the quarter with cash and cash equivalents of $1.5 billion, up 2.5% from 2019 end. Notes and contracts payable were $1 billion, up 38.8% from 2019 end.

Stockholders’ equity was $4.6 billion, up 3.3% from 2019 end. Cash flow from operations was $343.8 million, up 28.9% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 6.19% due to these changes.

VGM Scores

Currently, First American Financial has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise First American Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.