First American: A Strong Buy - Analyst Blog


On Dec 7, Zacks Investment Research upgraded First American Financial Corp. ( FAF ) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

First American has been experiencing rising earnings estimates on the back of improved core fundamentals in third-quarter 2013. Moreover, the company's strong underwriting capabilities and capital position have been impressive.

Additionally, this property-casualty insurer delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 8.7%. First American also outperformed the 6-month S&P 500, which posted an increase of 9.8% against the modest return of 20.1% clocked by the company.

On Oct 24, First American reported third-quarter operating earnings of 63 cents per share, which comfortably beat the Zacks Consensus Estimate by 2 cents but missed the year-ago quarter number by a penny.

Although higher expenses and unrealized losses marred the bottom line, the top line surged 7.7% over the prior-year quarter, driven by higher direct premiums, escrow fees and agent premiums across segments. Net investment income also improved within title insurance segment. Meanwhile, increased cash and assets also boosted the balance sheet position.

First American's growth strategy of enhancing core operating leverage is showing results. Moreover, the company's consistent capital deployment activities continue to boost investors' confidence in the stock.

Based on First American's capital strength and underwriting discipline, the Zacks Consensus Estimate for 2013 rose 4.3% to $1.69 per share in the last 60 days. The estimate for 2014 is pegged at $1.85, up 7.8% in the same period. Meanwhile, no downward revision in estimates was witnessed for both the years.

Meanwhile, the Most Accurate Estimate for First American's 2013 earnings stands at $1.74 a share, resulting in an Earnings ESP of 3.0%.

Other Insurers Worth a Look

Investors interested in the insurance industry may also consider stocks like HCI Group Inc. ( HCI ), Endurance Specialty Holdings Ltd. ( ENH ) and CNA Financial Corp. ( CNA ). All these stocks sport the same Zacks Rank as First American.

CNA FINL CORP (CNA): Free Stock Analysis Report

ENDURANCE SPLTY (ENH): Free Stock Analysis Report

FIRST AMER FINL (FAF): Free Stock Analysis Report

HCI GROUP INC (HCI): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CNA , ENH , FAF , HCI

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