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FAF Stock Near 52-Week High: Should You Buy or Wait for a Pullback?
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Shares of First American Financial (FAF - Free Report) closed at $65.01 on Monday, near its 52-week high of $67.88. Increased demand among millennials for first-time home purchases, the expansion of valuation and data businesses and strength in commercial business and technological upgrades are driving the price higher.
Shares of FAF have gained 21.3% in the past three months, outperforming the industry’s growth of 11.2%, the Finance sector’s increase of 2.4% and the Zacks S&P 500 composite’s increase of 4%.
FAF Outperforms Industry, Sector, S&P 500 in 3-Months
Image Source: Zacks Investment Research
FAF shares are trading well above the 50-day moving average, indicating a bullish trend.
Average Target Price for FAF Suggests an Upside
Based on short-term price targets offered by five analysts, the Zacks average price target is at $67.40 per share. The average suggests a potential 3.8% upside from Monday’s closing price of $65.01.
Mixed Analyst Sentiments
All three analysts covering the stock have raised estimates for 2024 while all three have lowered the same for 2025 over the past 60 days. The consensus estimate for 2024 has moved 3 cents north for 2024 and 7 cents south for 2025 in the past 30 days.
The Zacks Consensus Estimate for 2024 implies a 2.4% year-over-year increase, while the same for 2025 suggests a 26.7% increase.
Factors Favoring FAF
First American stands to gain from an increased demand for first-time home purchases among millennials. It expects housing demand, improving economy and labor markets to drive home price appreciation. Growing leadership in title data, courtesy of proprietary data extraction, sturdy distribution relationships, prudent underwriting and continued investments in technology poise FAF well for long-term growth. With the recent rate cut, purchase transaction volume should benefit.
Growing direct premiums, escrow fees and title agent premiums should continue to drive the top line. We expect the 2026 top line to increase at a three-year CAGR of 8.2%.
The title insurer stays focused on strengthening its product offerings, enhancing core business and expanding valuation and data businesses. Also, the expansion of title plant assets and the upgrade of technology solutions drive increased efficiency.
First American distributes wealth to shareholders via dividend hikes and share buybacks. Dividends witnessed an eight-year (2016-2024) CAGR of 8.2%, yielding 3.4% and outperforming the industry average of 0.3%. The insurer had $169.6 million remaining under its buyback authorization as of June 30, 2024.
Risks to FAF
Despite the upside potential, there are a few factors that investors should keep an eye on.
In its recently concluded FOMC meeting, the Federal Reserve cut the interest rate by 50 basis points. Insurers are direct beneficiaries of a rising rate environment. FAF estimates that for each 25-basis point decline in the Fed funds rate, the annualized investment income will decline by $15 million, but the ultimate amount will fluctuate depending on the level of cash and escrow balances.
First American Financial’s debt levels have been increasing in the past few years. Times interest earned too declined. Both metrics compared unfavorably with the industry average.
FAF’s Return on Capital
Return on equity in the trailing 12 months was 7.98%, marginally above the industry average of 7.96%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Return on invested capital (ROIC) reflects a company’s efficiency in utilizing funds to generate income. FAF’s ROIC in the trailing 12 months was 2.3%, lower than the industry average of 6.1%.
FAF Capital Shares Are Undervalued
FAF shares are trading at a price-to-book multiple of 1.38, lower than the industry average of 1.61.
Its pricing, at a discount to the industry average, gives a better entry point to investors. Also, it has a Value Score of B.
Shares of other insurers like Fidelity National Financial, Inc. (FNF - Free Report) are trading at a multiple higher than the industry average, while shares of Old Republic International Corporation (ORI - Free Report) are trading at a multiple lower than the industry average.
Conclusion
Increased demand among millennials for first-time home purchases, improved rate environment and strength in commercial business should favor FAF’s results. The solid dividend yield is another positive. FAF’s near-term prospects look bright, given its VGM Score of B. Stocks with a favorable VGM Score are those with the most attractive value, best growth and most promising momentum compared with peers.
Despite an attractive valuation, it is better to adopt a wait-and-see approach for this Zacks Rank #3 (Hold) insurer given mixed analyst sentiment, unfavorable leverage and times interest earned. You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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FAF Stock Near 52-Week High: Should You Buy or Wait for a Pullback?
Shares of First American Financial (FAF - Free Report) closed at $65.01 on Monday, near its 52-week high of $67.88. Increased demand among millennials for first-time home purchases, the expansion of valuation and data businesses and strength in commercial business and technological upgrades are driving the price higher.
Shares of FAF have gained 21.3% in the past three months, outperforming the industry’s growth of 11.2%, the Finance sector’s increase of 2.4% and the Zacks S&P 500 composite’s increase of 4%.
FAF Outperforms Industry, Sector, S&P 500 in 3-Months
Image Source: Zacks Investment Research
FAF shares are trading well above the 50-day moving average, indicating a bullish trend.
Average Target Price for FAF Suggests an Upside
Based on short-term price targets offered by five analysts, the Zacks average price target is at $67.40 per share. The average suggests a potential 3.8% upside from Monday’s closing price of $65.01.
Mixed Analyst Sentiments
All three analysts covering the stock have raised estimates for 2024 while all three have lowered the same for 2025 over the past 60 days. The consensus estimate for 2024 has moved 3 cents north for 2024 and 7 cents south for 2025 in the past 30 days.
The Zacks Consensus Estimate for 2024 implies a 2.4% year-over-year increase, while the same for 2025 suggests a 26.7% increase.
Factors Favoring FAF
First American stands to gain from an increased demand for first-time home purchases among millennials. It expects housing demand, improving economy and labor markets to drive home price appreciation. Growing leadership in title data, courtesy of proprietary data extraction, sturdy distribution relationships, prudent underwriting and continued investments in technology poise FAF well for long-term growth. With the recent rate cut, purchase transaction volume should benefit.
Growing direct premiums, escrow fees and title agent premiums should continue to drive the top line. We expect the 2026 top line to increase at a three-year CAGR of 8.2%.
The title insurer stays focused on strengthening its product offerings, enhancing core business and expanding valuation and data businesses. Also, the expansion of title plant assets and the upgrade of technology solutions drive increased efficiency.
First American distributes wealth to shareholders via dividend hikes and share buybacks. Dividends witnessed an eight-year (2016-2024) CAGR of 8.2%, yielding 3.4% and outperforming the industry average of 0.3%. The insurer had $169.6 million remaining under its buyback authorization as of June 30, 2024.
Risks to FAF
Despite the upside potential, there are a few factors that investors should keep an eye on.
In its recently concluded FOMC meeting, the Federal Reserve cut the interest rate by 50 basis points. Insurers are direct beneficiaries of a rising rate environment. FAF estimates that for each 25-basis point decline in the Fed funds rate, the annualized investment income will decline by $15 million, but the ultimate amount will fluctuate depending on the level of cash and escrow balances.
First American Financial’s debt levels have been increasing in the past few years. Times interest earned too declined. Both metrics compared unfavorably with the industry average.
FAF’s Return on Capital
Return on equity in the trailing 12 months was 7.98%, marginally above the industry average of 7.96%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Return on invested capital (ROIC) reflects a company’s efficiency in utilizing funds to generate income. FAF’s ROIC in the trailing 12 months was 2.3%, lower than the industry average of 6.1%.
FAF Capital Shares Are Undervalued
FAF shares are trading at a price-to-book multiple of 1.38, lower than the industry average of 1.61.
Its pricing, at a discount to the industry average, gives a better entry point to investors. Also, it has a Value Score of B.
Shares of other insurers like Fidelity National Financial, Inc. (FNF - Free Report) are trading at a multiple higher than the industry average, while shares of Old Republic International Corporation (ORI - Free Report) are trading at a multiple lower than the industry average.
Conclusion
Increased demand among millennials for first-time home purchases, improved rate environment and strength in commercial business should favor FAF’s results. The solid dividend yield is another positive. FAF’s near-term prospects look bright, given its VGM Score of B. Stocks with a favorable VGM Score are those with the most attractive value, best growth and most promising momentum compared with peers.
Despite an attractive valuation, it is better to adopt a wait-and-see approach for this Zacks Rank #3 (Hold) insurer given mixed analyst sentiment, unfavorable leverage and times interest earned. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.