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Why It's Worth Betting on First American (FAF) Stock Now

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First American Financial Corporation (FAF - Free Report) has been gaining momentum, given higher direct premiums and escrow fees, the acquisition of ServiceMac and a robust capital position.

Northbound Estimate Revision

The Zacks Consensus Estimate for 2022 and 2023 has moved 2.9% and 0.7% north, respectively in the past 60 days. This should instill investors' confidence in the stock.

Earnings Surprise History

First American has a solid track record of beating earnings estimates in five 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) was 16.9%, which compared favorably with the year-ago figure of 13.4% and the industry average of 5.9%. ROE reflects its efficiency in using its shareholders’ funds.

Style Score

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

Back-tested results show that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best investment opportunities.

Business Tailwinds

The Title Insurance and Services segment of the insurer accounted for the lion’s share of revenues in 2021. Higher direct premiums and escrow fees, higher average deal size in commercial business and the impact of strong home price appreciation on residential purchase transactions as well as the acquisition of ServiceMac are expected to drive the performance of this segment.

Higher operating revenues in the home warranty business should drive the Specialty Insurance business.

Per the strategic initiatives, First American actively pursues acquisitions to boost and expand its core business. In the first quarter of 2022, First American inked a deal to acquire Mother Lode Holding Company in an effort to enhance its capabilities to better serve customers across the strongest housing markets as well as strengthen its presence in the United States.

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.

Banking on solid cash flow, First American has increased dividends at an eight-year CAGR (2015-2022) of 9.3%. The dividend yield is 3.5%, better than the industry average of 0.3%, making the stock an attractive pick for yield-seeking investors.

The stock has lost 5.4% in the past year against the industry’s increase of 14.5%.

Zacks Investment Research
Image Source: Zacks Investment Research

Other Stocks to Consider

Some other top-ranked stocks from the insurance sector are Cincinnati Financial Corporation (CINF - Free Report) , United Fire Group, Inc. (UFCS - Free Report) and Kinsale Capital Group, Inc. (KNSL - Free Report) , each currently sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The bottom line of Cincinnati Financial surpassed earnings estimates in each of the last four quarters, the average being 38.48%. In the past year, the CINF stock has rallied 28.9%.

The Zacks Consensus Estimate for Cincinnati Financial’s 2022 and 2023 earnings has moved 5.7% and 5.5% north, respectively, in the past 60 days.

United Fire’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 275.45%. In the past year, UFCS stock has lost 11.3%.

The Zacks Consensus Estimate for United Fire’s 2022 and 2023 earnings has moved 122.2% and 76.9% north, respectively, in the past 60 days.

Kinsale Capital’s earnings surpassed estimates in each of the last four quarters, the average beat being 32.04%. In the past year, Kinsale Capital has increased 40.1%.

The Zacks Consensus Estimate for Kinsale Capital’s 2022 and 2023 earnings has moved 5.9% and 8.2% north, respectively, in the past 60 days.