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Why Is First American Financial (FAF) Down 0% Since Last Earnings Report?
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It has been about a month since the last earnings report for First American Financial (FAF - Free Report) . Shares have lost about 0% in that time frame, underperforming the S&P 500.
Will the recent 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 the most recent earnings report in order to get a better handle on the important drivers.
First American Q1 Earnings & Revenues Miss Estimates
First American Financial reported first-quarter 2024 operating income per share of 45 cents, which missed the Zacks Consensus Estimate by 32.8%. The bottom line increased 2.2% year over year.
The insurer’s results reflect soft performances in the Title Insurance and Services segment and lower investment income, partially offset by improvement in the Home Warranty segment.
Behind the Headlines
Operating revenues of $1.4 billion decreased 1.4% year over year due to lower direct premiums and escrow fees, agent premiums, as well as information and other. The top line missed the Zacks Consensus Estimate by 2.5%.
Investment income was $127.9 million in the first quarter, which decreased 4.5% year over year. The figure was lower than our estimate of $141.2 million.
Expenses declined 1.4% to $1.3 billion. Our estimate was $1.4 billion.
Segment Results
Title Insurance and Services: Total revenues decreased 2% year over year to $1.3 billion. The downside was due to lower direct premiums and escrow fees, agent premiums and information and other. The figure was in line with our estimate. Investment income of $117 million decreased 6% year over year. The decline was primarily due to lower average interest-bearing balances in the company’s escrow and tax-deferred property exchange balances. It was partly offset by higher interest income from the insurer's warehouse lending business.
Adjusted pretax margin contracted 200 basis points (bps) year over year to 4.8%. Title open orders decreased 10% to 155,500. Title closed orders decreased 3.6% to 102,700. The average revenue per direct title order increased 2.5% to $3,516, primarily attributable to a shift in the mix from lower premium default transactions to higher premium purchase transactions and an increase in the average revenue per order for purchase transactions.
Home Warranty: Total revenues increased 1% to $105.2 million. The figure was higher than our estimate of $93.8 million. Pretax income of $20.3 million increased 27.6% year over year. The claim loss rate was 41.7% in the first quarter, contracting 560 bps, primarily due to fewer claims and lower claim severity. The pretax margin was 19.3%, which expanded 400 bps year over year.
Corporate: Net investment income was $10.3 million in the first quarter, which increased 28.7% year over year. The growth was primarily attributable to changes in the value of investments associated with FAF’s deferred compensation program. The uptick was largely offset by higher personnel expenses reflecting returns on the plan participants’ investments.
Interest expense was $11.9 million in the first quarter, which decreased 9.8% year over year. The decrease was due to the repayment of the company's $250 million senior notes, which matured in February 2023.
Financial Update
First American exited the quarter with cash and cash equivalents of $1.5 billion, down 58.2% from the end of 2023. Notes and contracts payable were $1.4 billion, up 0.1% from the end of 2023.
Stockholders’ equity was $4.7 billion, down 1.2% from the 2023-end level. The debt-to-capital ratio was 30.3.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, First American Financial has a poor Growth Score of F, 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 D. 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, W.R. Berkley (WRB - Free Report) , a stock from the same industry, has gained 1.2%. The company reported its results for the quarter ended March 2024 more than a month ago.
W.R. Berkley reported revenues of $3.23 billion in the last reported quarter, representing a year-over-year change of +12.5%. EPS of $1.56 for the same period compares with $1 a year ago.
W.R. Berkley is expected to post earnings of $1.40 per share for the current quarter, representing a year-over-year change of +22.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -2%.
W.R. Berkley has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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Why Is First American Financial (FAF) Down 0% Since Last Earnings Report?
It has been about a month since the last earnings report for First American Financial (FAF - Free Report) . Shares have lost about 0% in that time frame, underperforming the S&P 500.
Will the recent 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 the most recent earnings report in order to get a better handle on the important drivers.
First American Q1 Earnings & Revenues Miss Estimates
First American Financial reported first-quarter 2024 operating income per share of 45 cents, which missed the Zacks Consensus Estimate by 32.8%. The bottom line increased 2.2% year over year.
The insurer’s results reflect soft performances in the Title Insurance and Services segment and lower investment income, partially offset by improvement in the Home Warranty segment.
Behind the Headlines
Operating revenues of $1.4 billion decreased 1.4% year over year due to lower direct premiums and escrow fees, agent premiums, as well as information and other. The top line missed the Zacks Consensus Estimate by 2.5%.
Investment income was $127.9 million in the first quarter, which decreased 4.5% year over year. The figure was lower than our estimate of $141.2 million.
Expenses declined 1.4% to $1.3 billion. Our estimate was $1.4 billion.
Segment Results
Title Insurance and Services: Total revenues decreased 2% year over year to $1.3 billion. The downside was due to lower direct premiums and escrow fees, agent premiums and information and other. The figure was in line with our estimate. Investment income of $117 million decreased 6% year over year. The decline was primarily due to lower average interest-bearing balances in the company’s escrow and tax-deferred property exchange balances. It was partly offset by higher interest income from the insurer's warehouse lending business.
Adjusted pretax margin contracted 200 basis points (bps) year over year to 4.8%. Title open orders decreased 10% to 155,500. Title closed orders decreased 3.6% to 102,700. The average revenue per direct title order increased 2.5% to $3,516, primarily attributable to a shift in the mix from lower premium default transactions to higher premium purchase transactions and an increase in the average revenue per order for purchase transactions.
Home Warranty: Total revenues increased 1% to $105.2 million. The figure was higher than our estimate of $93.8 million. Pretax income of $20.3 million increased 27.6% year over year. The claim loss rate was 41.7% in the first quarter, contracting 560 bps, primarily due to fewer claims and lower claim severity. The pretax margin was 19.3%, which expanded 400 bps year over year.
Corporate: Net investment income was $10.3 million in the first quarter, which increased 28.7% year over year. The growth was primarily attributable to changes in the value of investments associated with FAF’s deferred compensation program. The uptick was largely offset by higher personnel expenses reflecting returns on the plan participants’ investments.
Interest expense was $11.9 million in the first quarter, which decreased 9.8% year over year. The decrease was due to the repayment of the company's $250 million senior notes, which matured in February 2023.
Financial Update
First American exited the quarter with cash and cash equivalents of $1.5 billion, down 58.2% from the end of 2023. Notes and contracts payable were $1.4 billion, up 0.1% from the end of 2023.
Stockholders’ equity was $4.7 billion, down 1.2% from the 2023-end level. The debt-to-capital ratio was 30.3.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, First American Financial has a poor Growth Score of F, 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 D. 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, W.R. Berkley (WRB - Free Report) , a stock from the same industry, has gained 1.2%. The company reported its results for the quarter ended March 2024 more than a month ago.
W.R. Berkley reported revenues of $3.23 billion in the last reported quarter, representing a year-over-year change of +12.5%. EPS of $1.56 for the same period compares with $1 a year ago.
W.R. Berkley is expected to post earnings of $1.40 per share for the current quarter, representing a year-over-year change of +22.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -2%.
W.R. Berkley has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.