A month has gone by since the last earnings report for First American Financial (FAF Quick QuoteFAF - Free Report) . Shares have added about 3.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is First American Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

First American Q3 Earnings Beat Estimates, Dividend Raised

First American Financial reported third-quarter 2024 operating income per share of $1.34, which beat the Zacks Consensus Estimate of $1.15. The bottom line increased 9.8% year over year.

The insurer’s results reflected the benefits of the seasonal pick-up in demand despite challenging market conditions.

What’s Behind the Headlines for FAF?

Operating revenues of $1.4 billion fell 5.1% year over year due to lower agent premiums and information and other. The top line also missed the Zacks Consensus Estimate by 15.7%.

Investment income was $146.6 million in the third quarter, up 5.4% year over year. Our estimate was $146.5 million.

Expenses rose 4.6% to $1.6 billion. Our estimate was $1.5 billion.

FAF’s Segment Results

Title Insurance and Services: Total revenues increased 3.8% year over year to $1.6 billion. The upside was due to higher agent premiums and information and other. The figure was in line with our estimate.

Investment income of $136 million declined 4% year over year. The downside was primarily due to lower average interest-bearing escrow and tax-deferred property exchange balances, partly offset by higher interest income from the company's warehouse lending business.

Adjusted pretax margin contracted 40 basis points (bps) year over year to 11.6%. Title open orders increased 5.6% to 166,100. Title closed orders increased 13% to 121,600. The average revenue per direct title order increased 22.2% to $13,200, primarily owing to lower average interest-bearing escrow and tax-deferred property exchange balances, partly offset by higher interest income from warehouse lending business and the partial impact of the company's investment portfolio rebalancing project.

Home Warranty: Total revenues increased 2% to $111 million, higher than our estimate of $109.7 million. Pretax income of $9 million decreased 4% year over year. The claim loss rate was 53.8% in the third quarter, improving 110 bps due to lower claim severity, which was partially offset by higher claim frequency. The pretax margin was 8.1%, expanding 60 bps year over year.

Corporate: Net investment income was $9 million versus $4 million loss incurred in the year-ago quarter. The increase was driven by changes in the value of investments associated with the company’s deferred compensation program. This amount was offset by higher personnel expense, reflecting returns on the plan participants’ investments.

The pretax loss was $19 million in the quarter, down $5 million from the year-ago quarter, due to favorable reserve adjustments related to the legacy property and casualty business.

FAF’s Financial Update

First American exited the quarter with cash and cash equivalents of $2.9 billion, down 18.1% from the end of 2023. Notes and contracts payable were $1.8 billion, up 32.6% from the end of 2023.

Stockholders’ equity was $5.1 billion, up 5% from the 2023-end level. The debt-to-capital ratio was 34.8.

FAF bought back shares worth $16 million in the quarter.

Cash flow from operations was $237 million, up 8.2% year over year.

First American Raises Dividend

The board of directors raised the dividend by 2 cents to $2.16 per share. The board declared a dividend of 54 cents in the third quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, First American Financial has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise First American Financial has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

First American Financial is part of the Zacks Insurance - Property and Casualty industry. Over the past month, Travelers (TRV Quick QuoteTRV - Free Report) , a stock from the same industry, has gained 1.7%. The company reported its results for the quarter ended September 2024 more than a month ago.

Travelers reported revenues of $11.85 billion in the last reported quarter, representing a year-over-year change of +10.7%. EPS of $5.24 for the same period compares with $1.95 a year ago.

Travelers is expected to post earnings of $6.32 per share for the current quarter, representing a year-over-year change of -9.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.7%.

Travelers has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.