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Here's Why You Should Add First American to Your Portfolio

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Estimates for First American Financial Corporation (FAF - Free Report) have been revised upward over the past 60 days, reflecting analysts’ confidence in the stock. The stock has seen the Zacks Consensus Estimate for 2018 bottom line being revised 3.2% upward to $4.52 and for 2019 earnings, move 1.5% north to $4.82.

The company provides financial services with the help of its Title Insurance and Services unit as well as its Specialty Insurance business and carries a favorable VGM Score of B. Shares of this Zacks Rank #2 (Buy)  property and casualty (P&C) insurer have rallied nearly 16% in a year’s time, outperforming the industry’s 14.6% rise.

First American’s consistent increase in revenues, solid performance at its commercial business and a robust capital position should continue to drive results in the near term.

Let’s focus on the factors that make First American a stock to hold on to for reaping hefty returns.

Improving Premiums: The company has been witnessing premium growth driven by higher direct premium and escrow fees, mainly fueled by an increase in the average revenues per order closed at its title insurance and services segment. Banking on these positives, we expect the growth trajectory to continue in the near term as well.

Higher Net Investment Income: With gradual improvement in interest rates, the insurer has been able to witness higher investment income in the past few quarters. We expect better investment results in the upcoming quarters on the back of higher short-term interest rates that will drive income from the company’s cash balances and investment portfolio.

Top-Line Growth: Riding on the strength of continued growth in premiums and better investment results, First American has been generating stronger revenues for a substantial amount of time and the momentum is here to stay, thereby accelerating the company’s overall growth.

Moreover, on the basis of current housing market trends and a consistent economic expansion, sustained revenue growth is anticipated in purchase business.

Solid Commercial Business: The company’s commercial business has been exhibiting prowess over the past few years and the momentum is expected to continue owing to a healthy pipeline with steady improvement in open orders.

Effective Capital Deployment: The P&C insurer is well-positioned and focused to deploy capital intelligently to deliver long-term shareholder value. In fact, the company’s dividend has grown 28.5% over the last five years. Currently, it has a dividend yield of 2.96%, better than the industry average of 2.57%.

Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $4.52, representing a significant year-over-year increase of about 64.4% on 1.7% meatier revenues of $5.9 billion. For 2019, the bottom line per share is pegged at $4.82, translating into a year-over-year rise of 6.8% on 3.2% revenue growth of $6.1 billion.

Positive Earnings Surprise History: First American’s surprise history indicates its sturdy operational efficiency with the company having delivered positive surprises in all the last four quarters, the average beat being 8.22%.

Other Stocks to Consider

Investors interested in other top-ranked stocks from the insurance industry can also consider The Progressive Corporation (PGR - Free Report) , NMI Holdings Inc. (NMIH - Free Report) and The Navigators Group, Inc. (NAVG - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Progressive Corporation provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance plus related services, primarily in the United States. The company delivered positive surprises in all the preceding four quarters with an average earnings surprise of 9.19%.    

NMI Holdings provides private mortgage guaranty insurance services in the United States. The company pulled off positive surprises in all the trailing four quarters with an average positive surprise of 29.85%.

Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States and globally. The company came up with positive surprises in three of the preceding four quarters with an average beat of 19.54%.

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