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First American Financial (FAF) Up 7.3% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for First American Financial (FAF - Free Report) . Shares have added about 7.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is First American Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
First American Q2 Earnings Top, Revenues Miss Estimates
First American Financial reports a second-quarter 2024 operating income per share of $1.27, which beat the Zacks Consensus Estimate by 12.4%. The bottom line decreased 5.9% year over year. The insurer’s results reflect the benefits of the seasonal pick-up in demand despite challenging market conditions.
Behind the Headlines
Operating revenues of $1.6 billion dropped 2.1% year over year due to lower agent premiums and information and other. The top line missed the Zacks Consensus Estimate by 1.2%. Investment income was $129.9 million in the first quarter, declining 4.5% year over year. The figure was lower than our estimate of $150 million. Expenses inched down 0.9% to $1.5 billion. Our estimate was $1.5 billion.
Segment Results
Title Insurance and Services: Total revenues fell 0.6% year over year to $1.5 billion. The downside was due to lower agent premiums and information and other. The figure was in line with our estimate. Investment income of $126 million declined 11.3% year over year. The downside was primarily due to lower average interest-bearing escrow and tax-deferred property exchange balances, partly offset by higher interest income from the company's warehouse lending business.
Adjusted pretax margin contracted 70 basis points (bps) year over year to 11.9%. Title open orders dropped 2.8% to 169,600. Title closed orders fell 2.8% to 124,700. The average revenue per direct title order increased 0.9% to $11,700, primarily owing to a shift in the mix from lower premium default transactions to higher premium commercial transactions and an increase in the average revenue per order for purchase transactions.
Home Warranty: Total revenues increased 0.3% to $106 million. The figure was higher than our estimate of $102.6 million. Pretax income of $16.5 million increased 15.4% year over year. The claim loss rate was 45.8% in the first quarter, contracting 340 bps due to lower claim severity, which was partially offset by higher claim frequency. The pretax margin was 15.4%, which expanded 200 bps year over year.
Corporate: Net investment income was $4 million, down 50% year over year, primarily attributable to changes in the value of investments associated with the company’s deferred compensation program. This amount was offset by lower personnel expenses reflecting returns on the plan participants’ investments. Interest expenses were $23 million, up 9% year over year due to higher interest expenses in the company's warehouse lending business.
Financial Update
First American exited the quarter with cash and cash equivalents of $2 billion, down 43.2% from the end of 2023. Notes and contracts payable were $1.4 billion, up 0.4% from the end of 2023. Stockholders’ equity was $4.7 billion, down 0.7% from the 2023-end level. The debt-to-capital ratio was 29.7.
FAF bought back shares worth $4 1million in the quarter. Through Jul 23, it repurchased an additional $15 million worth of shares. Cash flow from operations was $267 million, down 0.7% year over year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, First American Financial has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, First American Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
First American Financial is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Travelers (TRV - Free Report) , a stock from the same industry, has gained 4.1%. The company reported its results for the quarter ended June 2024 more than a month ago.
Travelers reported revenues of $11.35 billion in the last reported quarter, representing a year-over-year change of +12%. EPS of $2.51 for the same period compares with $0.06 a year ago.
Travelers is expected to post earnings of $3.84 per share for the current quarter, representing a year-over-year change of +96.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Travelers. Also, the stock has a VGM Score of B.
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First American Financial (FAF) Up 7.3% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for First American Financial (FAF - Free Report) . Shares have added about 7.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is First American Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
First American Q2 Earnings Top, Revenues Miss Estimates
First American Financial reports a second-quarter 2024 operating income per share of $1.27, which beat the Zacks Consensus Estimate by 12.4%. The bottom line decreased 5.9% year over year. The insurer’s results reflect the benefits of the seasonal pick-up in demand despite challenging market conditions.
Behind the Headlines
Operating revenues of $1.6 billion dropped 2.1% year over year due to lower agent premiums and information and other. The top line missed the Zacks Consensus Estimate by 1.2%. Investment income was $129.9 million in the first quarter, declining 4.5% year over year. The figure was lower than our estimate of $150 million. Expenses inched down 0.9% to $1.5 billion. Our estimate was $1.5 billion.
Segment Results
Title Insurance and Services: Total revenues fell 0.6% year over year to $1.5 billion. The downside was due to lower agent premiums and information and other. The figure was in line with our estimate. Investment income of $126 million declined 11.3% year over year. The downside was primarily due to lower average interest-bearing escrow and tax-deferred property exchange balances, partly offset by higher interest income from the company's warehouse lending business.
Adjusted pretax margin contracted 70 basis points (bps) year over year to 11.9%. Title open orders dropped 2.8% to 169,600. Title closed orders fell 2.8% to 124,700. The average revenue per direct title order increased 0.9% to $11,700, primarily owing to a shift in the mix from lower premium default transactions to higher premium commercial transactions and an increase in the average revenue per order for purchase transactions.
Home Warranty: Total revenues increased 0.3% to $106 million. The figure was higher than our estimate of $102.6 million. Pretax income of $16.5 million increased 15.4% year over year. The claim loss rate was 45.8% in the first quarter, contracting 340 bps due to lower claim severity, which was partially offset by higher claim frequency. The pretax margin was 15.4%, which expanded 200 bps year over year.
Corporate: Net investment income was $4 million, down 50% year over year, primarily attributable to changes in the value of investments associated with the company’s deferred compensation program. This amount was offset by lower personnel expenses reflecting returns on the plan participants’ investments. Interest expenses were $23 million, up 9% year over year due to higher interest expenses in the company's warehouse lending business.
Financial Update
First American exited the quarter with cash and cash equivalents of $2 billion, down 43.2% from the end of 2023. Notes and contracts payable were $1.4 billion, up 0.4% from the end of 2023. Stockholders’ equity was $4.7 billion, down 0.7% from the 2023-end level. The debt-to-capital ratio was 29.7.
FAF bought back shares worth $4 1million in the quarter. Through Jul 23, it repurchased an additional $15 million worth of shares. Cash flow from operations was $267 million, down 0.7% year over year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, First American Financial has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, First American Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
First American Financial is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Travelers (TRV - Free Report) , a stock from the same industry, has gained 4.1%. The company reported its results for the quarter ended June 2024 more than a month ago.
Travelers reported revenues of $11.35 billion in the last reported quarter, representing a year-over-year change of +12%. EPS of $2.51 for the same period compares with $0.06 a year ago.
Travelers is expected to post earnings of $3.84 per share for the current quarter, representing a year-over-year change of +96.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Travelers. Also, the stock has a VGM Score of B.