Shares of First American Financial Corporation (FAF Quick QuoteFAF - Free Report) have rallied 17% in the past six months, outperforming the industry’s 11.9% growth. The insurer also outperformed the Zacks S&P 500 composite and the Finance sector’s return of 6.5% and 10.5%, respectively, in the past six months. With a market capitalization of $6.43 billion, the average volume of shares traded in the last three months was 0.6 million.

FAF Outperforms Industry, Sector, S&P in 6 Months

Image Source: Zacks Investment Research

The stock is currently priced at $62.44 and is trading above the 200-day simple moving average (SMA) of $60.51, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

First American’s Favorable Return on Equity

FAF’s return on equity in the trailing 12 months was 7.9%, better than the industry average of 7.5%, reflecting efficiency in utilizing shareholders’ funds.

FAF’s Growth Projection Encourages

The Zacks Consensus Estimate for First American’s 2025 earnings per share and revenues indicates an increase of 30.6% and 17.1%, respectively, from the corresponding 2024 estimates.

Optimistic Analyst Sentiment on FAF

One of the four analysts covering the stock has raised estimates for 2025 over the past 60 days. Thus, the Zacks Consensus Estimate for 2025 moved 0.9% north in the last 60 days.

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. 

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 0.2%.

FAF Capital Shares are Undervalued

FAF shares are trading at a price-to-book multiple of 1.26, lower than the industry average of 1.53.

Its pricing, at a discount to the industry average, gives a better entry point to investors. Also, it has a Value Score of A. 

Shares of other insurers like ProAssurance Corporation (PRA Quick QuotePRA - Free Report) , Axis Capital Holdings Limited (AXS Quick QuoteAXS - Free Report) and CNA Financial Corporation (CNA Quick QuoteCNA - Free Report) are trading at a multiple lower than the industry average.

Final Take on FAF

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. First American also has a 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. Coupled with the positives and the affordability of the stock, the time appears right for potential investors to bet on this Zacks Rank #2 (Buy) insurer. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.