On Apr 1, 2015, Zacks Investment Research upgraded
First American Financial Corp.
by a notch to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
First American has witnessed rising earnings estimates on the
back of improved core fundamentals in 2014, followed by solid
fourth-quarter 2014 results. Moreover, the company's strong
underwriting capabilities and capital position have been
impressive, evident from the 4% dividend hike in Jan 2015.
Additionally, this property-casualty insurer delivered positive
earnings surprises in three of the last four quarters with an
average beat of 35.5%. On Feb 12, First American reported
fourth-quarter operating earnings of 82 cents per share, which
topped the Zacks Consensus Estimate by 43.9% and the year-ago
quarter number by a whopping 60.8%.
While lower operating expenses as well as policy loss and claim
provisions aided 0.2% decline in total expenses, improved premiums,
escrow fees and revenue per order in both title and specialty
insurance segments facilitated top-line growth. Notably, commercial
revenues grew 13%.
Improved operating margins across segments also brighten the
fundamental growth outlook. First American's healthy balance sheet,
liquidity and strong cash operating cash flow, which surged 36.8%
at 2014-end, reflect strong operating leverage and pave the way for
consistent capital deployment through acquisitions and shareholder
returns, thereby boosting investors' confidence in the stock.
Upward estimate revisions also boost optimism. Accordingly, the
Zacks Consensus Estimate for 2015 rose 3.5% to $2.36 per share in
the last 60 days. The estimate for 2016 is pegged at $2.60, up 7%
in the same period. Meanwhile, no downward revision in estimates
was witnessed for both the years.
Meanwhile, steady growth, diversified product portfolio and
healthy capital position have been fuelling improved market trends.
Subsequently, First American outperformed the six-month S&P
500, which posted an increase of 4.6% against the solid return of
29.1% clocked by the company.
Other Promising Insurers
Investors interested in the insurance industry may also consider
stocks like Allied World Assurance Co. Holdings AG
, Arch Capital Group Ltd.
and Universal Insurance Holdings Inc.
. All these stocks sport the same Zacks Rank as First American.
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