Shares of First American Financial (FAF) have been strong performers lately, with the stock up 2.1% over the past month. The stock hit a new 52-week high of $60.63 in the previous session. First American Financial has gained 35.2% since the start of the year compared to the 15% move for the Zacks Finance sector and the 6.1% return for the Zacks Insurance - Property and Casualty industry.
What's Driving the Outperformance?
The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on July 25, 2019, First American Financial reported EPS of $1.58 versus consensus estimate of $1.35 while it beat the consensus revenue estimate by 1.67%.
For the current fiscal year, First American Financial is expected to post earnings of $5.07 per share on $5.98 billion in revenues. This represents a 21% change in EPS on a 4% change in revenues. For the next fiscal year, the company is expected to earn $5.06 per share on $6.03 billion in revenues. This represents a year-over-year change of -0.2% and 0.95%, respectively.
First American Financial may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
First American Financial has a Value Score of A. The stock's Growth and Momentum Scores are B and A, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 11.9X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 10.1X versus its peer group's average of 13.9X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, First American Financial currently has a Zacks Rank of #1 (Strong Buy) thanks to favorable earnings estimate revisions from covering analysts.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if First American Financial meets the list of requirements. Thus, it seems as though First American Financial shares could still be poised for more gains ahead.
How Does First American Financial Stack Up to the Competition?
Shares of First American Financial have been moving higher, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also solid potential picks, including Fidelity National Financial (FNF), The Allstate (
ALL Quick Quote ALL - Free Report) , and Goosehead Insurance (GSHD), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.
The Zacks Industry Rank is in the top 39% of all the industries we have in our universe, so it looks like there are some nice tailwinds for First American Financial, even beyond its own solid fundamental situation.