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First American Financial (FAF) Down 4.7% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for First American Financial (FAF - Free Report) . Shares have lost about 4.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is First American Financial due for a breakout? 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 Q4 Earnings Miss, Revenues Decline Y/Y
First American Financial reported fourth-quarter 2023 operating income per share of 69 cents, which missed the Zacks Consensus Estimate by 8%. The bottom line declined 48.9% year over year. Operating revenues of $1.4 billion decreased 15.2% year over year due to lower direct premiums and escrow fees, agent premiums, and information and other. However, the top line beat the Zacks Consensus Estimate by 2.8%.
The insurer’s mixed results reflect soft performances in the Title Insurance and Services segment, partially offset by improved net investment income and its expense management strategy.
Behind the Headlines
Investment income was $146.6 million, up 4% year over year. The increase was primarily due to rising interest rates.The metric beat the Zacks Consensus Estimate by a whisker. Expenses declined 14.5% to $1.4 billion. It came in lower than our estimate of $1.6 billion.
Segment Results
Title Insurance and Services: Total revenues, excluding net investment gains and losses, decreased 19.1% year over year to $1.4 billion. The downside was due to lower direct premiums and escrow fees, agent premiums and information and other. Our estimate was $1.6 billion. Adjusted pretax margin contracted 330 basis points (bps) year over year to 7.5%.
Title open orders per day decreased 18.6%. Title closed orders per day decreased 19.7%. Average revenue per direct title order decreased to $3,899, primarily attributable to the impact of lower average revenue per order for commercial transactions.
Home Warranty: Total revenues declined 8.8% to $98.8 million in the fourth quarter. Our estimate was $104.9 million. The Zacks Consensus Estimate was pegged at $105 million.
Pretax income of $14.7 million declined 5.8% year over year. The claim loss rate was 43.6% in the fourth quarter, contracting 380 bps, primarily due to lower claim severity and fewer claims. Adjusted pretax margin was 19.9%, up 110 bps year over year.
Corporate: At the beginning of the first quarter of 2023, all current and prior-year results of the company’s property and casualty business have been reclassified to Corporate.
Net investment income was $13 million in the fourth quarter due to a change in value in investments related to FAF’s deferred compensation program. The segment reported a net loss of $36.1 million in the fourth quarter.
Full-Year Highlights
Full-year 2023 adjusted income of $3.80 per share decreased 40.2% year over year. Total revenues decreased 21.1% year over year in 2023 to $6 billion.
Financial Update
First American exited the fourth quarter with cash and cash equivalents of $3.6 billion, up from $1.2 billion at 2022-end. Notes and contracts payable were $1.4 billion, down from $1.6 billion at 2022-end. Stockholders’ equity was $4.8 billion, up from $4.7 billion at 2022-end. The debt-to-capital ratio was 28.6%.
Capital Deployment
The board of directors increased dividend by 2% to an annual rate of $2.12 per share. FAF bought back shares worth $17.7 million in the fourth quarter of 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
VGM Scores
Currently, First American Financial has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
First American Financial has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
First American Financial belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Axis Capital (AXS - Free Report) , has gained 3.6% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Axis Capital reported revenues of $1.46 billion in the last reported quarter, representing a year-over-year change of -2.2%. EPS of $2.94 for the same period compares with $1.95 a year ago.
Axis Capital is expected to post earnings of $2.70 per share for the current quarter, representing a year-over-year change of +15.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.8%.
Axis Capital has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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First American Financial (FAF) Down 4.7% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for First American Financial (FAF - Free Report) . Shares have lost about 4.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is First American Financial due for a breakout? 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 Q4 Earnings Miss, Revenues Decline Y/Y
First American Financial reported fourth-quarter 2023 operating income per share of 69 cents, which missed the Zacks Consensus Estimate by 8%. The bottom line declined 48.9% year over year. Operating revenues of $1.4 billion decreased 15.2% year over year due to lower direct premiums and escrow fees, agent premiums, and information and other. However, the top line beat the Zacks Consensus Estimate by 2.8%.
The insurer’s mixed results reflect soft performances in the Title Insurance and Services segment, partially offset by improved net investment income and its expense management strategy.
Behind the Headlines
Investment income was $146.6 million, up 4% year over year. The increase was primarily due to rising interest rates.The metric beat the Zacks Consensus Estimate by a whisker. Expenses declined 14.5% to $1.4 billion. It came in lower than our estimate of $1.6 billion.
Segment Results
Title Insurance and Services: Total revenues, excluding net investment gains and losses, decreased 19.1% year over year to $1.4 billion. The downside was due to lower direct premiums and escrow fees, agent premiums and information and other. Our estimate was $1.6 billion. Adjusted pretax margin contracted 330 basis points (bps) year over year to 7.5%.
Title open orders per day decreased 18.6%. Title closed orders per day decreased 19.7%. Average revenue per direct title order decreased to $3,899, primarily attributable to the impact of lower average revenue per order for commercial transactions.
Home Warranty: Total revenues declined 8.8% to $98.8 million in the fourth quarter. Our estimate was $104.9 million. The Zacks Consensus Estimate was pegged at $105 million.
Pretax income of $14.7 million declined 5.8% year over year. The claim loss rate was 43.6% in the fourth quarter, contracting 380 bps, primarily due to lower claim severity and fewer claims. Adjusted pretax margin was 19.9%, up 110 bps year over year.
Corporate: At the beginning of the first quarter of 2023, all current and prior-year results of the company’s property and casualty business have been reclassified to Corporate.
Net investment income was $13 million in the fourth quarter due to a change in value in investments related to FAF’s deferred compensation program. The segment reported a net loss of $36.1 million in the fourth quarter.
Full-Year Highlights
Full-year 2023 adjusted income of $3.80 per share decreased 40.2% year over year. Total revenues decreased 21.1% year over year in 2023 to $6 billion.
Financial Update
First American exited the fourth quarter with cash and cash equivalents of $3.6 billion, up from $1.2 billion at 2022-end. Notes and contracts payable were $1.4 billion, down from $1.6 billion at 2022-end. Stockholders’ equity was $4.8 billion, up from $4.7 billion at 2022-end. The debt-to-capital ratio was 28.6%.
Capital Deployment
The board of directors increased dividend by 2% to an annual rate of $2.12 per share. FAF bought back shares worth $17.7 million in the fourth quarter of 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
VGM Scores
Currently, First American Financial has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
First American Financial has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
First American Financial belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Axis Capital (AXS - Free Report) , has gained 3.6% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Axis Capital reported revenues of $1.46 billion in the last reported quarter, representing a year-over-year change of -2.2%. EPS of $2.94 for the same period compares with $1.95 a year ago.
Axis Capital is expected to post earnings of $2.70 per share for the current quarter, representing a year-over-year change of +15.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.8%.
Axis Capital has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.