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Reasons Why First American (FAF) Stock is a Solid Pick Now
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First American Financial Corporation (FAF - Free Report) 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 $6.99, indicating year-over-year increase of 28.3%.
Estimate Revision
The Zacks Consensus Estimate for 2021 and 2022 has moved 2.9% and 0.7% 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 three of the last four quarters and missed in one, with the average being 21.07%.
Zacks Rank & Price Performance
First American currently carries a Zacks Rank #2 (Buy). The stock has rallied 35.5% year to date, outperforming the industry’s increase of 19.6%.
Image Source: Zacks Investment Research
Return on Equity (ROE)
The company’s trailing 12-month return on equity (ROE) of 16.2% reflects its growth potential. It compares favorably with the industry average of 5.7%. ROE reflects its efficiency in using its shareholders’ funds.
Style Score
It has an impressive Value Score of A, which reflects attractive valuation of the stock.
The company 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.
Back-tested results show that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment opportunities.
Business Tailwinds
First American has been experiencing consistent revenue growth over the past several years on the back of solid performance across its Title Insurance and Services and Specialty Insurance segments.
Increase in the number of closed orders coupled with increase in the average revenue per order, solid performance of the commercial market, improved direct premium and escrow fees from favorable refinance, and higher demand for title information products in data and analytics, commercial and loss mitigation business lines are likely to drive the top-line growth of the company.
In line with its strategic initiatives, First American actively pursues acquisitions to boost and expand its core business. In the third quarter, it acquired Georgetown Title, which is expected to fortify First American Title Insurance Company’s presence in Williamson County and better serve customers with added services and resources. This buyout is likely to bolster and expand the insurer’s title insurance business and settlement and escrow services, which in turn contribute to the top-line growth of the company.
Moreover, the title insurer boasts a solid balance sheet with high liquidity and improving leverage. Its debt to capital of 16% betters the industry average of 19.5%. In addition, it continued to maintain a cash and cash equivalent position of $2.2 million.
Furthermore, in the third quarter of 2021, it approved a dividend hike of 11%. Besides regular dividend hike, the board has increased the size of the its share repurchase plan from $300 million to $600 million. With the increase in authorization, the company has $472 million remaining under the share repurchase authorization.
These initiatives reflect the insurer’s strong financial condition, liquidity, and long-standing commitment to return capital to stockholders. Its current dividend yield of 2.6% is better than the industry average of 0.4%, which makes the stock an attractive pick for yield-seeking investors.
Image: Bigstock
Reasons Why First American (FAF) Stock is a Solid Pick Now
First American Financial Corporation (FAF - Free Report) 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 $6.99, indicating year-over-year increase of 28.3%.
Estimate Revision
The Zacks Consensus Estimate for 2021 and 2022 has moved 2.9% and 0.7% 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 three of the last four quarters and missed in one, with the average being 21.07%.
Zacks Rank & Price Performance
First American currently carries a Zacks Rank #2 (Buy). The stock has rallied 35.5% year to date, outperforming the industry’s increase of 19.6%.
Image Source: Zacks Investment Research
Return on Equity (ROE)
The company’s trailing 12-month return on equity (ROE) of 16.2% reflects its growth potential. It compares favorably with the industry average of 5.7%. ROE reflects its efficiency in using its shareholders’ funds.
Style Score
It has an impressive Value Score of A, which reflects attractive valuation of the stock.
The company 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.
Back-tested results show that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment opportunities.
Business Tailwinds
First American has been experiencing consistent revenue growth over the past several years on the back of solid performance across its Title Insurance and Services and Specialty Insurance segments.
Increase in the number of closed orders coupled with increase in the average revenue per order, solid performance of the commercial market, improved direct premium and escrow fees from favorable refinance, and higher demand for title information products in data and analytics, commercial and loss mitigation business lines are likely to drive the top-line growth of the company.
In line with its strategic initiatives, First American actively pursues acquisitions to boost and expand its core business. In the third quarter, it acquired Georgetown Title, which is expected to fortify First American Title Insurance Company’s presence in Williamson County and better serve customers with added services and resources. This buyout is likely to bolster and expand the insurer’s title insurance business and settlement and escrow services, which in turn contribute to the top-line growth of the company.
Moreover, the title insurer boasts a solid balance sheet with high liquidity and improving leverage. Its debt to capital of 16% betters the industry average of 19.5%. In addition, it continued to maintain a cash and cash equivalent position of $2.2 million.
Furthermore, in the third quarter of 2021, it approved a dividend hike of 11%. Besides regular dividend hike, the board has increased the size of the its share repurchase plan from $300 million to $600 million. With the increase in authorization, the company has $472 million remaining under the share repurchase authorization.
These initiatives reflect the insurer’s strong financial condition, liquidity, and long-standing commitment to return capital to stockholders. Its current dividend yield of 2.6% is better than the industry average of 0.4%, which makes the stock an attractive pick for yield-seeking investors.
Other Stocks to Consider
Some other top-ranked stocks from the property and casualty insurance sector are Chubb Limited (CB - Free Report) , Cincinnati Financial Corporation (CINF - Free Report) and Everest Re Group, Ltd. , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chubb surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 7.14%.
The bottom line of Cincinnati Financial surpassed estimates in three of the last four quarters and missed in the other one, the average being 36.01%.
Everest Re’s earnings surpassed estimates in two of the last four quarters and missed in the other two, the average being 20.33%.