First American Financial (FAF - Free Report) is poised for long-term growth on the back of increased demand among millennials for first-time home purchases, improved rate environment, strength in commercial business and effective capital deployment. The company has an impressive VGM Score of A. This style score helps to find the most attractive value, best growth, and most promising momentum stock.
Shares of First American Financial have rallied 30% year to date compared with the industry's growth of 2.6% and the Zacks S&P 500 composite’s rise of 13.4%. The company has seen its estimates for 2019 move up 1.4% in the past 30 days, reflecting investor optimism over the stock.
First American Financial’s return on equity was 14.8% in the second quarter of 2019, higher than the industry average of 6.8%. Return on equity is a profitability measure that identifies the company’s efficiency in utilizing its shareholders’ funds. The company aims 12-14% return on equity over the long term.
First American Financial is poised to benefit from strength in purchase market, which drives substantial growth in refinance activity and supports a healthy commercial market. It expects sustained solid performance from its commercial business.
Improving revenues along with solid expense control should continue to drive margin expansion. The company has also been pursing strategic buyouts that not only strengthen its core business and expand its valuation and data businesses. The company remains committed to making acquisitions that meet its risk-adjusted return target.
The company has been strengthening its balance sheet with improving cash level and lowering debt that in turn supports financial flexibility. Banking on solid capital position, the company continually increases dividend as well as buys back shares. While it has $163.2 million worth of shares remaining under authorization, the dividend yield of 2.95% betters the industry average of 0.4%. These make the stock an attractive pick for yield seeking investors.
The Zacks Rank #2 (Buy) insurer has a stellar record of surpassing estimates in each of the last 15 quarters, reflecting operational excellence.
The company carries a Value Score of A. Value Score helps to find most attractive value stocks. Back-tested results show that stocks with a Value Score of A or B and a Zacks #1(Strong Buy) or 2 offer the best investment opportunities.
The Zacks Consensus Estimate for 2019 and 2020 earnings indicates 17.7% and 0.4% growth, respectively, from the year-ago reported figure. The expected long-term earnings growth is pegged at 11%, better than the industry average of 10.5%. The company has a Growth Score of B. This Style Score analyzes the growth prospects of a company.
Other Stocks to Consider
Some other top-ranked property and casualty insurance stocks are Alleghany (Y - Free Report) , CNA Financial (CNA - Free Report) and Cincinnati Financial (CINF - Free Report) .
Alleghany provides property and casualty reinsurance and insurance products in the United States and internationally. The company delivered positive surprise of 30.80% in the last reported quarter. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
CNA Financial provides commercial property and casualty insurance products primarily in the United States. The company delivered positive surprise of 6.93% in the last reported quarter. The stock carries a Zacks Rank #2.
Cincinnati Financial provides property casualty insurance products in the United States. The company delivered positive surprise of 32.81% in the last reported quarter. The stock carries a Zacks Rank #2.
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