First American Financial (FAF) Up 8.5% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for First American Financial (FAF). Shares have added about 8.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

FAF's Q2 Earnings Beat on Solid Commercial Business, Investment Income

First American Financial reported a second-quarter 2025 operating income per share of $1.53, which beat the Zacks Consensus Estimate by 9.3%. The bottom line increased 20.5% year over year.

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

Behind the Headlines

Operating revenues of $1.8 billion increased 14.2% year over year due to higher direct premiums and escrow fees, agent premiums, as well as information and other and net investment income. The top line beat the Zacks Consensus Estimate by 5%.

Investment income was $160 million in the second quarter, which increased 23% year over year. The figure was higher than our estimate of $157.3 million.
Expenses increased 6.7% year over year to $1.6 billion, in line with our estimate.

Segment Results

Title Insurance and Services: Total revenues increased 13.2% year over year to $1.7 billion. The figure was in line with our estimate. Investment income of $147 million, up 17% year over year. The improvement was primarily driven by higher interest income from the company's investment portfolio.

Adjusted pretax margin expanded 130 basis points (bps) year over year to 13.2%. Title open orders rose 5.8% year over year to 179,500. Title closed orders rose 5.1% year over year to 131,100.

The average revenue per direct title order increased 7.7% year over year to $4112, primarily due to an increase in the average revenue per order for commercial transactions, partially offset by a shift in the mix to lower premium refinance transactions.

Home Warranty: Total revenues grew 3.1% to $110.2 million. The figure was lower than our estimate of $114.6 million. Pretax income of $22 million jumped 35% year over year. The claim loss rate was 41% in the second quarter, improving 500 bps, primarily due to lower claim severity. The pretax margin was 20.7%, which expanded 550 bps year over year.

Corporate: Corporate pretax loss (excluding net investment losses primarily related to changes in the fair value of marketable securities) was $40 million in the reported quarter, up $17 million compared with the second quarter of 2024. The higher loss in the current quarter was largely driven by a $13 million one-time expense related to executive separation costs.

Financial Update

First American exited the quarter with cash and cash equivalents of $2 billion, up 18.2% from the end of 2024. Notes and contracts payable of $1.5 billion remained flat from the end of 2024.

Stockholders’ equity was $5.1 billion, up 4.4% from the 2024-end level. The debt-to-capital ratio was 32.1.

FAF bought back shares worth $61 million in the quarter. Its board approved a $300 million share buyback program in July.  Through July 23, it repurchased an additional $32 million worth of shares.

Cash flow from operations was $355 million, up 33.4% year over year.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a upward trend in estimates revision.

VGM Scores

Currently, First American Financial has a nice Growth Score of B, a score with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. Notably, First American Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

First American Financial belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Travelers (TRV), has gained 4.9% over the past month. More than a month has passed since the company reported results for the quarter ended June 2025.

Travelers reported revenues of $12.11 billion in the last reported quarter, representing a year-over-year change of +6.7%. EPS of $6.51 for the same period compares with $2.51 a year ago.

Travelers is expected to post earnings of $5.28 per share for the current quarter, representing a year-over-year change of +0.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Travelers. Also, the stock has a VGM Score of B.

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This article originally published on Zacks Investment Research (zacks.com).

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