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Why You Should Stay Invested in First American (FAF) Stock
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First American Financial Corporation’s (FAF - Free Report) improved agent premiums, higher direct premiums and escrow fees, effective capital deployment and favorable growth estimates make it worth retaining in one’s portfolio.
Earnings Surprise History
First American has a solid track record of beating earnings estimates in five of the last six quarters.
Zacks Rank & Price Performance
First American currently carries a Zacks Rank #3 (Hold).
Return on Equity
The insurer’s trailing 12-month return on equity (ROE) was 15.6%, which expanded 130 basis points year over year and compared favorably with the industry average of 5.9%. ROE reflects its efficiency in using shareholders’ funds.
Business Tailwinds
The Zacks Consensus Estimate for 2023 earnings per share is pegged at $6.97, indicating a year-over-year increase of 5.8%.
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 gains in both the home warranty and property and casualty businesses should drive the Specialty Insurance business.
A higher number of closed orders, coupled with an increase in the average revenue per order, solid performance of the commercial market, and improved direct premium and escrow fees from favorable refinance are likely to drive top-line growth.
In line with its strategic initiatives, the title insurer actively pursues acquisitions to boost and expand its core business. The acquisitions are likely to expand the insurer’s title insurance business and settlement and escrow services, enhance its capabilities to better serve customers as well as strengthen its international presence. These initiatives will contribute to the revenue growth of First American.
Investment income within the Title Insurance and Services segment will continue to gain from higher average invested balances. FAF expects to generate additional investment income from escrow deposits, cash balances, exchange deposits and bank investment portfolio with the rising Federal Reserve rates. Based on the forward curve for the Fed funds rate, FAF anticipates investment income to grow by about $150 million on an annualized basis by the end of 2022.
First American boasts a healthy balance sheet along with an impressive solvency level, which implies that its cash reserves are sufficient to meet debt obligations.
First American has increased dividends at an eight-year CAGR (2015-2022) of 9.3%. The dividend yield is 3.8%, better than the industry average of 0.4%, making the stock an attractive pick for yield-seeking investors. With the increase in authorization, the insurer has $335 million remaining under the share repurchase authorization. The dividend hike and increase in repurchase authorization reflect the insurer’s strong financial condition, liquidity, and long-standing commitment to return capital to stockholders.
The stock has lost 12.9% in the past year compared with the industry’s decrease of 4.6%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the property and casualty insurance industry are American Financial Group, Inc. (AFG - Free Report) , United Fire Group, Inc. (UFCS - Free Report) and Chubb Limited (CB - Free Report) . While American Financial Group sports a Zacks Rank #1 (Strong Buy), United Fire and Chubb carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 41.72%. In the past year, American Financial has gained 16%.
The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 9.8% and 6.9% north, respectively, in the past 60 days.
United Fire’s earnings surpassed estimates in three of the last four quarters and matched in one, the average earnings surprise being 270.8%. In the past year, UFCS stock has gained 40.9%.
The Zacks Consensus Estimate for United Fire’s 2022 earnings has moved 23.5% north in the past 60 days.
Chubb’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 13.4%. In the past year, CB stock has gained 22.7%.
The Zacks Consensus Estimate for Chubb’s 2022 and 2023 earnings per share indicates a year-over-year increase of 18.9% and 10.7%, respectively.
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Why You Should Stay Invested in First American (FAF) Stock
First American Financial Corporation’s (FAF - Free Report) improved agent premiums, higher direct premiums and escrow fees, effective capital deployment and favorable growth estimates make it worth retaining in one’s portfolio.
Earnings Surprise History
First American has a solid track record of beating earnings estimates in five of the last six quarters.
Zacks Rank & Price Performance
First American currently carries a Zacks Rank #3 (Hold).
Return on Equity
The insurer’s trailing 12-month return on equity (ROE) was 15.6%, which expanded 130 basis points year over year and compared favorably with the industry average of 5.9%. ROE reflects its efficiency in using shareholders’ funds.
Business Tailwinds
The Zacks Consensus Estimate for 2023 earnings per share is pegged at $6.97, indicating a year-over-year increase of 5.8%.
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 gains in both the home warranty and property and casualty businesses should drive the Specialty Insurance business.
A higher number of closed orders, coupled with an increase in the average revenue per order, solid performance of the commercial market, and improved direct premium and escrow fees from favorable refinance are likely to drive top-line growth.
In line with its strategic initiatives, the title insurer actively pursues acquisitions to boost and expand its core business. The acquisitions are likely to expand the insurer’s title insurance business and settlement and escrow services, enhance its capabilities to better serve customers as well as strengthen its international presence. These initiatives will contribute to the revenue growth of First American.
Investment income within the Title Insurance and Services segment will continue to gain from higher average invested balances. FAF expects to generate additional investment income from escrow deposits, cash balances, exchange deposits and bank investment portfolio with the rising Federal Reserve rates. Based on the forward curve for the Fed funds rate, FAF anticipates investment income to grow by about $150 million on an annualized basis by the end of 2022.
First American boasts a healthy balance sheet along with an impressive solvency level, which implies that its cash reserves are sufficient to meet debt obligations.
First American has increased dividends at an eight-year CAGR (2015-2022) of 9.3%. The dividend yield is 3.8%, better than the industry average of 0.4%, making the stock an attractive pick for yield-seeking investors. With the increase in authorization, the insurer has $335 million remaining under the share repurchase authorization. The dividend hike and increase in repurchase authorization reflect the insurer’s strong financial condition, liquidity, and long-standing commitment to return capital to stockholders.
The stock has lost 12.9% in the past year compared with the industry’s decrease of 4.6%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the property and casualty insurance industry are American Financial Group, Inc. (AFG - Free Report) , United Fire Group, Inc. (UFCS - Free Report) and Chubb Limited (CB - Free Report) . While American Financial Group sports a Zacks Rank #1 (Strong Buy), United Fire and Chubb carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 41.72%. In the past year, American Financial has gained 16%.
The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 9.8% and 6.9% north, respectively, in the past 60 days.
United Fire’s earnings surpassed estimates in three of the last four quarters and matched in one, the average earnings surprise being 270.8%. In the past year, UFCS stock has gained 40.9%.
The Zacks Consensus Estimate for United Fire’s 2022 earnings has moved 23.5% north in the past 60 days.
Chubb’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 13.4%. In the past year, CB stock has gained 22.7%.
The Zacks Consensus Estimate for Chubb’s 2022 and 2023 earnings per share indicates a year-over-year increase of 18.9% and 10.7%, respectively.