First American Financial Corporation (FAF Quick QuoteFAF - Free Report) is well-poised for growth on the back of higher direct premiums and escrow fees, solid performance of the commercial market, effective capital deployment and strong liquidity position.

Earnings Surprise History

First American has a solid track record of beating earnings estimates in each of the last six quarters.

Zacks Rank

First American currently carries a Zacks Rank #2 (Buy).

Return on Equity

The insurer’s trailing 12-month return on equity (ROE) is 14.9%, which compares favorably with the industry average of 6.7%. ROE reflects its efficiency in using shareholders’ funds.

Style Score

First American has a favorable VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

Business Tailwinds

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 gain in both the home warranty and property and casualty businesses should drive the Specialty Insurance business.

A higher number of closed orders, increases in the average revenue per order, solid performance of the commercial market, as well as improved direct premium and escrow fees from favorable refinance are likely to drive revenue growth. Higher demand for title information products in data and analytics and commercial and loss mitigation business lines should also add to the upside.

Investment income within the Title Insurance and Services segment will continue to gain from higher short-term interest rates in the company’s investment portfolio and escrow and like-kind exchange deposits. Based on the current forward curve for Fed funds and assuming escrow balances remain at current levels, the company expects investment income in the title segment to be $600 million in 2023.

FAF boasts a strong liquidity position to enhance operating leverage, implying that its cash reserves are sufficient to meet debt obligations.

First American raised dividends at a nine-year CAGR (2014-2022) of 17.7%. The insurer engages in share buybacks. The board has increased the size of its share repurchase plan from $300 million to $600 million.

FAF also has an impressive Value Score of A. Back-tested results show that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.

The Zacks Consensus Estimate for FAF’s 2023 earnings has moved 3.9% north in the past 60 days.  

The stock has lost 2.6% in the last six months period against the industry’s increase of 11.5%.

Image Source: Zacks Investment Research

Other Stocks to Consider

Some other top-ranked stocks from the insurance industry are Root, Inc. (ROOT Quick QuoteROOT - Free Report) , Kinsale Capital Group, Inc. (KNSL Quick QuoteKNSL - Free Report) and CNA Financial Corporation (CNA Quick QuoteCNA - Free Report) , each carrying a Zacks Rank #2  at present. You can see the complete list of today’s Zacks #1 Rank  stocks here.

Root delivered a trailing four-quarter average earnings surprise of 22.44%. In the last six months period, ROOT has lost 80.2%.

The Zacks Consensus Estimate for ROOT’s 2023 earnings indicates a respective year-over-year increase of 23.9%.

Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average being 15.16%. In the last six months period, KNSL has gained 6.9%.

The Zacks Consensus Estimate for KNSL’s 2023 earnings implies a respective year-over-year rise of 22.4%.

The Zacks Consensus Estimate for CNA Financial’s 2023 earnings implies a respective year-over-year rise of 12.5%. In the last six months period, CNA has lost 3.6%.

The Zacks Consensus Estimate for CNA’s 2023 earnings has moved 2.5% north in the past 60 days.