First American Financial Corporation (FAF Quick QuoteFAF - Free Report) closed at $64.17 on Wednesday, near its 52-week high of $67.88. This proximity underscores investor confidence. It has the ingredients for further price appreciation. The stock is trading above the 200-day simple moving average (SMA) of $59.24, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

With a market capitalization of $6.61 billion, the average volume of shares traded in the last three months was 0.7 million.

Shares of this insurer have gained 13.7% over the past year compared with the industry’s growth of 31.7%.

FAF Price Performance

Image Source: Zacks Investment Research

First American’s Favorable Return on Equity

FAF’s return on equity in the trailing 12 months was 7.9%, better than the industry average of 7.5%, reflecting efficiency in utilizing shareholders’ funds.

FAF’s Growth Projection Encourages

The Zacks Consensus Estimate for First American’s 2024 earnings per share indicates a year-over-year increase of 5%. The consensus estimate for revenues is pegged at $6.15 billion, implying a year-over-year improvement of 2.4%.

The consensus estimate for 2025 earnings per share and revenues indicates an increase of 32.1% and 14.4%, respectively, from the corresponding 2024 estimates.

Optimistic Analyst Sentiment on FAF

Two of the four analysts covering the stock have raised estimates for 2024 and 2025 over the past 30 days. Thus, the Zacks Consensus Estimate for 2024 and 2025 moved 2.5% and 4.3% north, respectively, in the last 30 days.

Factors Favoring FAF

First American stands to gain from an increased demand for first-time home purchases among millennials. It expects housing demand, improving economy and labor markets to drive home price appreciation. Growing leadership in title data, courtesy of proprietary data extraction, sturdy distribution relationships, prudent underwriting and continued investments in technology poise FAF well for long-term growth. With the recent rate cut, purchase transaction volume should benefit.

Growing direct premiums, escrow fees and title agent premiums should continue to drive the top line.

The title insurer stays focused on strengthening its product offerings, enhancing core business and expanding valuation and data businesses. Also, the expansion of title plant assets and the upgrade of technology solutions drive increased efficiency.

First American distributes wealth to shareholders via dividend hikes and share buybacks. Dividends witnessed an eight-year (2016-2024) CAGR of 8.2%, yielding 3.3% and outperforming the industry average of 0.2%.

FAF Capital Shares are Undervalued

FAF shares are trading at a price-to-book multiple of 1.29, lower than the industry average of 1.5.

Its pricing, at a discount to the industry average, gives a better entry point to investors. Also, it has a Value Score of A.

Shares of other insurers like ProAssurance Corporation (PRA Quick QuotePRA - Free Report) , Axis Capital Holdings Limited (AXS Quick QuoteAXS - Free Report) and CNA Financial Corporation (CNA Quick QuoteCNA - Free Report) are trading at a multiple lower than the industry average.

Conclusion

Increased demand among millennials for first-time home purchases, improved rate environment and strength in commercial business should favor FAF’s results. The solid dividend yield is another positive. First American also has a VGM Score of B. Stocks with a favorable VGM Score are those with the most attractive value, best growth and most promising momentum compared with peers. Coupled with the positives and the affordability of the stock, the time appears right for potential investors to bet on this Zacks Rank #1 (Strong Buy) insurer. You can see the complete list of today’s Zacks #1 Rank stocks here.