Here's Why Hold Strategy is Apt for First American (FAF)

First American Financial Corporation FAF has been in investors' good books on the back of higher domestic residential purchase and commercial transactions, strategic buyouts, higher average invested balances and strong liquidity position.

Earnings Surprise History

First American has a solid track record of beating earnings estimates in five of the last seven quarters.

Zacks Rank

First American currently carries a Zacks Rank #3 (Hold).

Return on Equity

This insurer’s trailing 12-month return on equity (ROE) of 13.4% contracted 350 basis points year over year. ROE reflects its efficiency in using shareholders’ funds.

Business Tailwinds

The Title Insurance and Services business of First American is expected to gain momentum from improved agent premiums, higher direct premiums and escrow fees, increased domestic residential purchase and commercial transactions.

Higher operating revenues in the home warranty business and higher net realized investment gain in both the home warranty and property and casualty businesses should drive the Specialty Insurance business.

A higher number of closed orders, increases in average revenue per order, solid performance of the commercial market, as well as improved direct premium and escrow fees from favorable refinance are likely to drive revenue growth. Higher demand for title information products in data and analytics and commercial and loss mitigation business lines should also add to the upside.

Investment income within the Title Insurance and Services segment will continue to gain from higher short-term interest rates in the company’s investment portfolio and escrow and like-kind exchange deposits. With the increase of short-term rates, the company expects investment income to continue to be a tailwind for earnings in 2023.

FAF boasts a strong liquidity position to enhance operating leverage, implying that its cash reserves are sufficient to meet debt obligations.

First American has raised dividends at an eight-year (2016-2023) CAGR of 9%. The insurer also engages in share buybacks. The board has increased the size of its share repurchase plan from $300 million to $600 million. In 2022, the company returned $658 million to shareholders through share repurchases and dividends and repurchased shares for $441 million.

The Zacks Consensus Estimate for FAF’s 2024 earnings has moved 8.5% north in the past 30 days.  

The stock has lost 20.5% in the past year compared with the industry’s decrease of 7.4%.

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance industry are Axis Capital Holdings Limited AXS, Everest Re Group, Ltd. RE and Kinsale Capital Group, Inc. KNSL, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Axis Capital beat estimates in three of the last four quarters and missed in one, the average being 5.70%. The Zacks Consensus Estimate for 2023 has moved 5.4% north in the past 60 days.

The Zacks Consensus Estimate for AXS’ 2023 and 2024 earnings per share is pegged at $7.53 and $8.42, indicating year-over-year increase of 29.6% and 11.7%, respectively. In the past year, AXS has gained 1.4%.

The Zacks Consensus Estimate for Everest Re’s 2023 and 2024 earnings per share is pegged at $46.03 and $53.25, indicating year-over-year increase of 69.9% and 15.7%, respectively. In the past year, RE has gained 26.6%.

RE beat estimates in each of the last four quarters, the average being 18.41%.

Kinsale Capital has a solid track record of beating earnings estimates in each of the last four quarters, the average being 13.83%. In the past year, KNSL has gained 35.9%.

The Zacks Consensus Estimate for Kinsale Capital’s 2023 and 2024 earnings per share is pegged at $9.86 and $11.85, indicating year-over-year increase of 26.4% and 20.2%, respectively.

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report

Everest Re Group, Ltd. (RE) : Free Stock Analysis Report

First American Financial Corporation (FAF) : Free Stock Analysis Report

Kinsale Capital Group, Inc. (KNSL) : Free Stock Analysis Report

To read this article on Zacks.com click here.

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.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.