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FAF Stock Outperforms Industry: Time to Buy for Solid Returns?
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Key Takeaways
First American's commercial revenue rose 34% to $314 million, with revenue per order up 31%.
FAF's average deposits increased 30% to $7.9 billion, supported by ServiceMac and non-title deposits.
AI cut form-update time by 97%, while ExamAssist QC processed 50,000 orders, with 92% needing no review.
Shares of First American Financial Corporation (FAF - Free Report) have risen 18% year-to-date, outperforming the industry’s growth of 3.7%.
The gain reflects strong earnings growth, driven by commercial title activity and higher premiums. Data-center growth and resilient investment income are further supporting its earnings outlook. All these factors have strengthened investor confidence despite a weak residential housing market.
Shares of some of its other insurers like RenaissanceRe Holdings Ltd. (RNR - Free Report) and NMI Holdings Inc. (NMIH - Free Report) have gained 16.8% and 8.1%, respectively, while Axis Capital Holdings Limited (AXS - Free Report) has lost 6.8% year-to-date.
Image Source: Zacks Investment Research
FAF's Valuation
First American shares are trading at a discount compared with the industry. Its 12-month trailing price-to-book value of 1.32X is lower than the industry average of 1.45X. The stock has a Value Score of A.
Image Source: Zacks Investment Research
Shares of RNR, NMIH and AXS are also trading at a discount to the industry average.
Average Target Price for FAF Suggests Upside
Based on short-term price targets offered by five analysts, the Zacks average price target is $88.20 per share. The average suggests a potential 20.6% upside from the last closing price.
Image Source: Zacks Investment Research
FAF’s Growth Projection Encourages
The Zacks Consensus Estimate for First American’s 2026 earnings per share (EPS) indicates a year-over-year increase of 17.5%. The consensus estimate for revenues is pegged at $8.2 billion, implying a year-over-year improvement of 9.5%.
The consensus estimate for 2027 EPS and revenues indicates an increase of 4.2% and 7.2%, respectively, from the corresponding 2026 estimates.
The expected long-term earnings growth rate is 15.2%.
Optimist Analyst Sentiment on FAF
The company has witnessed four upward earnings estimate revisions for 2026 and 2027 over the past 60 days compared to one downward revision. Thus, the Zacks Consensus Estimate for 2026 and 2027 earnings has moved up 5.3% and 3.8%, respectively, over the same period.
FAF’s Efficient Use of Shareholder Capital
First American’s trailing 12-month return on equity of 13.3% compared favorably with the industry’s 7.5%, reflecting the company’s efficiency in utilizing shareholders’ funds.
Key Drivers of FAF Stock
First American remains well positioned for long-term growth as demand for title insurance and settlement services continues across residential and commercial markets. While residential activity remains subdued, strong commercial demand is offsetting weakness. In the second quarter of 2026, commercial revenues rose 34% year over year to $314 million, while revenues per order increased 31% to $19,980. Management expects commercial ARPO to remain strong in the second half, supported by a robust pipeline and growing large-ticket transactions.
Growth in First American Trust is providing FAF with an increasingly important earnings driver. Average deposits rose 30% year over year to $7.9 billion in the second quarter of 2026, supported by strong growth in ServiceMac and other non-title deposits. Management expects these deposit sources to provide meaningful long-term growth.
FAF is well positioned to benefit from rising investment in data centers. Data-center revenues surged140% year over year in the second quarter of 2026, with several transactions generating premiums of more than $1 million. The company also benefits from multiple transaction opportunities tied to a data-center project, including land purchases, construction loans and takeout refinancing.
FAF is leveraging AI to improve operational efficiency. AI reduced the time required to update 1,300 forms by 97%, while ExamAssist QC processed more than 50,000 orders, with 92% requiring no additional human review. The company is deploying AI across its operations through platforms such as Endpoint, SEQUOIA, Exam Assist QC and ServiceMac, which are expanding automation and potentially strengthening productivity and FAF’s competitive position.
First American maintains strong financial flexibility. As of June 30, 2026, the company had $2.6 billion in cash, $10.7 billion in investments and $5.6 billion in equity. Free cash flow rose 32% year over year to $285 million in the first half. Strong liquidity supports strategic acquisitions, dividends and share repurchases. Its dividend yield is 3%, which is better than the industry average of 0.2%, making it an attractive pick for yield-seeking investors.
Risks for FAF
Elevated mortgage rates, affordability challenges and low housing inventory continue to pressure home purchase activity and title insurance revenues.
FAF's strong dependence on commercial title insurance also remains a risk. A slowdown in commercial real estate transactions could weigh on FAF's revenue growth and earnings.
Conclusion
Strength in commercial business, rising deposits, data-center growth, continued investments in technology, and disciplined capital deployment should favor FAF’s results. However, a weak residential housing market and dependence on commercial title are headwinds.
FAF’s VGM Score of A instils confidence. Given attractive valuation, solid growth projections, optimistic analyst sentiment, impressive dividend history and higher ROE, it appears right time to buy this Zacks Rank #2 (Buy) insurer. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
View the Zacks #1 Rank List
Image: Bigstock
FAF Stock Outperforms Industry: Time to Buy for Solid Returns?
Key Takeaways
Shares of First American Financial Corporation (FAF - Free Report) have risen 18% year-to-date, outperforming the industry’s growth of 3.7%.
The gain reflects strong earnings growth, driven by commercial title activity and higher premiums. Data-center growth and resilient investment income are further supporting its earnings outlook. All these factors have strengthened investor confidence despite a weak residential housing market.
Shares of some of its other insurers like RenaissanceRe Holdings Ltd. (RNR - Free Report) and NMI Holdings Inc. (NMIH - Free Report) have gained 16.8% and 8.1%, respectively, while Axis Capital Holdings Limited (AXS - Free Report) has lost 6.8% year-to-date.
Image Source: Zacks Investment Research
FAF's Valuation
First American shares are trading at a discount compared with the industry. Its 12-month trailing price-to-book value of 1.32X is lower than the industry average of 1.45X. The stock has a Value Score of A.
Image Source: Zacks Investment Research
Shares of RNR, NMIH and AXS are also trading at a discount to the industry average.
Average Target Price for FAF Suggests Upside
Based on short-term price targets offered by five analysts, the Zacks average price target is $88.20 per share. The average suggests a potential 20.6% upside from the last closing price.
Image Source: Zacks Investment Research
FAF’s Growth Projection Encourages
The Zacks Consensus Estimate for First American’s 2026 earnings per share (EPS) indicates a year-over-year increase of 17.5%. The consensus estimate for revenues is pegged at $8.2 billion, implying a year-over-year improvement of 9.5%.
The consensus estimate for 2027 EPS and revenues indicates an increase of 4.2% and 7.2%, respectively, from the corresponding 2026 estimates.
The expected long-term earnings growth rate is 15.2%.
Optimist Analyst Sentiment on FAF
The company has witnessed four upward earnings estimate revisions for 2026 and 2027 over the past 60 days compared to one downward revision. Thus, the Zacks Consensus Estimate for 2026 and 2027 earnings has moved up 5.3% and 3.8%, respectively, over the same period.
FAF’s Efficient Use of Shareholder Capital
First American’s trailing 12-month return on equity of 13.3% compared favorably with the industry’s 7.5%, reflecting the company’s efficiency in utilizing shareholders’ funds.
Key Drivers of FAF Stock
First American remains well positioned for long-term growth as demand for title insurance and settlement services continues across residential and commercial markets. While residential activity remains subdued, strong commercial demand is offsetting weakness. In the second quarter of 2026, commercial revenues rose 34% year over year to $314 million, while revenues per order increased 31% to $19,980. Management expects commercial ARPO to remain strong in the second half, supported by a robust pipeline and growing large-ticket transactions.
Growth in First American Trust is providing FAF with an increasingly important earnings driver. Average deposits rose 30% year over year to $7.9 billion in the second quarter of 2026, supported by strong growth in ServiceMac and other non-title deposits. Management expects these deposit sources to provide meaningful long-term growth.
FAF is well positioned to benefit from rising investment in data centers. Data-center revenues surged140% year over year in the second quarter of 2026, with several transactions generating premiums of more than $1 million. The company also benefits from multiple transaction opportunities tied to a data-center project, including land purchases, construction loans and takeout refinancing.
FAF is leveraging AI to improve operational efficiency. AI reduced the time required to update 1,300 forms by 97%, while ExamAssist QC processed more than 50,000 orders, with 92% requiring no additional human review. The company is deploying AI across its operations through platforms such as Endpoint, SEQUOIA, Exam Assist QC and ServiceMac, which are expanding automation and potentially strengthening productivity and FAF’s competitive position.
First American maintains strong financial flexibility. As of June 30, 2026, the company had $2.6 billion in cash, $10.7 billion in investments and $5.6 billion in equity. Free cash flow rose 32% year over year to $285 million in the first half. Strong liquidity supports strategic acquisitions, dividends and share repurchases. Its dividend yield is 3%, which is better than the industry average of 0.2%, making it an attractive pick for yield-seeking investors.
Risks for FAF
Elevated mortgage rates, affordability challenges and low housing inventory continue to pressure home purchase activity and title insurance revenues.
FAF's strong dependence on commercial title insurance also remains a risk. A slowdown in commercial real estate transactions could weigh on FAF's revenue growth and earnings.
Conclusion
Strength in commercial business, rising deposits, data-center growth, continued investments in technology, and disciplined capital deployment should favor FAF’s results. However, a weak residential housing market and dependence on commercial title are headwinds.
FAF’s VGM Score of A instils confidence. Given attractive valuation, solid growth projections, optimistic analyst sentiment, impressive dividend history and higher ROE, it appears right time to buy this Zacks Rank #2 (Buy) insurer. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.