We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Can First American's Home Warranty Maintain Its Profitability?
Read MoreHide Full Article
Key Takeaways
Home Warranty revenues rose 3% to $113.8 million, while pretax income increased 9% to $24.2 million.
The segment's pretax margin grew 21.3%, supported by favorable claims experience and lower claim frequency.
Renewal-based warranty policies offer recurring revenues that cushions FAF when real estate activity weakens.
First American Financial Corporation’s (FAF - Free Report) Home Warranty business can support long-term growth by providing recurring revenues, strong profitability and greater earnings diversification beyond its cyclical title-insurance operations.
Home Warranty generates relatively recurring revenues from customers seeking protection against unexpected home-system and appliance repair costs. This provides FAF with a more stable earnings stream than its transaction-sensitive title business. In the second quarter of 2026, Home Warranty generated $113.8 million of revenues, up 3% year over year, while pretax income increased 9% to $24.2 million. The pretax margin improved to 21.3% from 20.2%, reflecting solid profitability.
The segment’s claims experience also remains favorable. Its claim loss rate declined to 40% from 41% in the second quarter of 2026, primarily due to lower claim frequency, although higher claim severity partly offset the improvement. Continued control over claim frequency and severity should be important for maintaining margins.
Home Warranty also strengthens FAF’s business diversification by expanding its exposure to the broader homeownership and home-maintenance ecosystem, rather than relying primarily on real-estate transactions. When housing activity or mortgage originations weaken, the segment can help cushion FAF’s earnings because its revenues are not directly dependent on title order volumes.
Furthermore, renewal-based warranty policies can provide a more predictable source of revenue between real-estate transaction cycles. This recurring earnings stream can complement FAF’s title-insurance operations and improve the overall resilience of its business model. Overall, Home Warranty could become an increasingly important stabilizing earnings engine for FAF. Its recurring revenues, strong margins and favorable claims trends can help offset volatility in the title business and support sustainable long-term profitability, provided FAF continues to manage claim costs effectively.
What About Other Players?
Fidelity National Financial, Inc. (FNF - Free Report) operates its Home Warranty business through Fidelity National Home Warranty, which protects against unexpected repair or replacement costs for major home appliances and systems. Home Warranty is included within FNF’s Title segment, alongside title insurance, escrow and other title-related services. The business also complements FNF’s core real-estate operations by providing an additional service to homeowners and real-estate customers.
Old Republic International Corporation (ORI - Free Report) operates its Home Warranty business through Old Republic Home Warranty, a subsidiary that has been part of ORI since 1982. The business provides home warranty plans that cover the repair or replacement of major home systems and appliances when they fail because of normal wear and use, including heating, air conditioning, plumbing, electrical systems and kitchen appliances. The business serves both homeowners and real-estate professionals, making its warranties particularly relevant during home-buying and selling transactions. It also offers optional coverage that allows customers to tailor plans to their specific needs.
FAF’s Price Performance
Shares of FAF have gained 8.3% in the past year, outperforming the industry.
Image Source: Zacks Investment Research
FAF’s Undervaluation
The stock is undervalued compared with its industry. It is currently trading at a price-to-book value multiple of 1.3, lower than the industry average of 1.41. It carries a Value Score of A.
Image Source: Zacks Investment Research
Estimate Movement for FAF
The Zacks Consensus Estimate for FAF’s third-quarter and fourth-quarter 2026 EPS has moved up 6.8% and 2.8%, respectively, in the past 30 days. The same for the full-year 2026 and 2027 EPS has moved up 5.5% and 3.6%, respectively, in the past 30 days.
Image Source: Zacks Investment Research
The consensus estimates for FAF’s 2026 EPS and 2027 revenues indicate a year-over-year increase.
View the Zacks #1 Rank List
Image: Bigstock
Can First American's Home Warranty Maintain Its Profitability?
Key Takeaways
First American Financial Corporation’s (FAF - Free Report) Home Warranty business can support long-term growth by providing recurring revenues, strong profitability and greater earnings diversification beyond its cyclical title-insurance operations.
Home Warranty generates relatively recurring revenues from customers seeking protection against unexpected home-system and appliance repair costs. This provides FAF with a more stable earnings stream than its transaction-sensitive title business. In the second quarter of 2026, Home Warranty generated $113.8 million of revenues, up 3% year over year, while pretax income increased 9% to $24.2 million. The pretax margin improved to 21.3% from 20.2%, reflecting solid profitability.
The segment’s claims experience also remains favorable. Its claim loss rate declined to 40% from 41% in the second quarter of 2026, primarily due to lower claim frequency, although higher claim severity partly offset the improvement. Continued control over claim frequency and severity should be important for maintaining margins.
Home Warranty also strengthens FAF’s business diversification by expanding its exposure to the broader homeownership and home-maintenance ecosystem, rather than relying primarily on real-estate transactions. When housing activity or mortgage originations weaken, the segment can help cushion FAF’s earnings because its revenues are not directly dependent on title order volumes.
Furthermore, renewal-based warranty policies can provide a more predictable source of revenue between real-estate transaction cycles. This recurring earnings stream can complement FAF’s title-insurance operations and improve the overall resilience of its business model.
Overall, Home Warranty could become an increasingly important stabilizing earnings engine for FAF. Its recurring revenues, strong margins and favorable claims trends can help offset volatility in the title business and support sustainable long-term profitability, provided FAF continues to manage claim costs effectively.
What About Other Players?
Fidelity National Financial, Inc. (FNF - Free Report) operates its Home Warranty business through Fidelity National Home Warranty, which protects against unexpected repair or replacement costs for major home appliances and systems. Home Warranty is included within FNF’s Title segment, alongside title insurance, escrow and other title-related services. The business also complements FNF’s core real-estate operations by providing an additional service to homeowners and real-estate customers.
Old Republic International Corporation (ORI - Free Report) operates its Home Warranty business through Old Republic Home Warranty, a subsidiary that has been part of ORI since 1982. The business provides home warranty plans that cover the repair or replacement of major home systems and appliances when they fail because of normal wear and use, including heating, air conditioning, plumbing, electrical systems and kitchen appliances. The business serves both homeowners and real-estate professionals, making its warranties particularly relevant during home-buying and selling transactions. It also offers optional coverage that allows customers to tailor plans to their specific needs.
FAF’s Price Performance
Shares of FAF have gained 8.3% in the past year, outperforming the industry.
Image Source: Zacks Investment Research
FAF’s Undervaluation
The stock is undervalued compared with its industry. It is currently trading at a price-to-book value multiple of 1.3, lower than the industry average of 1.41. It carries a Value Score of A.
Image Source: Zacks Investment Research
Estimate Movement for FAF
The Zacks Consensus Estimate for FAF’s third-quarter and fourth-quarter 2026 EPS has moved up 6.8% and 2.8%, respectively, in the past 30 days. The same for the full-year 2026 and 2027 EPS has moved up 5.5% and 3.6%, respectively, in the past 30 days.
Image Source: Zacks Investment Research
The consensus estimates for FAF’s 2026 EPS and 2027 revenues indicate a year-over-year increase.
FAF stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.