First American (FAF) Up to Strong Buy on Promising Outlook - Analyst Blog

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On Apr 1, 2015, Zacks Investment Research upgraded First American Financial Corp. FAF 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 AWH , Arch Capital Group Ltd. ACGL and Universal Insurance Holdings Inc. UVE . All these stocks sport the same Zacks Rank as First American.

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FIRST AMER FINL (FAF): Free Stock Analysis Report

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ALLIED WORLD AS (AWH): Free Stock Analysis Report

UNIVL INSUR HLD (UVE): Get Free 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 Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: FAF , ACGL , UVE

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