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First American Financial (FAF) Up 1.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for First American Financial (FAF - Free Report) . Shares have added about 1.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is First American Financial due for a pullback? 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 catalysts.

First American Financial Q2 Earnings & Revenues Beat

First American Financial reported second-quarter 2019 operating income per share of $1.58, which outpaced the Zacks Consensus Estimate by 17%. Moreover, the bottom line improved 18.8% year over year.

The quarter benefited from effective expense management and growth in investment income.

The company noted that low interest rates continued to strengthen the purchase market, drive substantial growth in refinance activity and support a healthy commercial market.

Behind the Headlines

Operating revenues of $1.5 billion increased 0.5% year over year and beat the Zacks Consensus Estimate by nearly 1.7%

Net investment income surged 37.9% to $77.7 million.

Total expense of $1.3 billion decreased 1.6% year over year, attributable to lower personnel costs, premiums retained by agents, premium taxes and other operating expenses.

Segment Results

Title Insurance and Services: Total revenues remained flat year over year at $1.4 billion.

Pretax margin of a record 17% expanded 170 basis points.

Title open orders increased 7% to 296,200 while Title closed orders increased 0.2% year over year to 196,600.

Average revenue per order increased to $2,620, attributable to higher residential real estate values, partially offset by a shift in the mix of direct revenues to lower premium refinance transactions.

Average revenue per order for purchase transactions increased 3% while average revenue per order for commercial transactions increased 1%.

Specialty Insurance: Total revenues increased 2.3% year over year to $123 million.

Pretax margin expanded 440 basis points to 12.8%, attributable to a decline in loss ratio to 56.4%.

The segment benefited from home warranty business that had lower claim losses due to lower claim frequency and severity.

Financial Update

First American exited the quarter with cash and cash equivalents of $1.4 billion, down 3.8% from 2018 end. Notes and contracts payable were $729.6 million, down 0.3% from 2018 end.

First American exited the quarter with stockholders’ equity of $4.1 billion, up 9.2% from 2018 end.

Debt-to-capital ratio at second-quarter end was 18.4%.

Cash flow from operations was $266.7 million, up 26.5% year over year.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months.

VGM Scores

At this time, First American Financial has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

First American Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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