Are Investors Undervaluing First American Financial (FAF) Right Now?

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use tried-and-true metrics and fundamental analysis to find companies that they believe are undervalued at their current share price levels.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

First American Financial (FAF) is a stock many investors are watching right now. FAF is currently sporting a Zacks Rank #2 (Buy), as well as an A grade for Value. The stock has a Forward P/E ratio of 11.43. This compares to its industry's average Forward P/E of 27.93. Over the last 12 months, FAF's Forward P/E has been as high as 15.32 and as low as 9.75, with a median of 11.61.

Investors should also recognize that FAF has a P/B ratio of 1.31. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. This stock's P/B looks attractive against its industry's average P/B of 1.46. Over the past year, FAF's P/B has been as high as 1.43 and as low as 1.08, with a median of 1.29.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. FAF has a P/S ratio of 0.92. This compares to its industry's average P/S of 1.31.

Investors could also keep in mind United Fire Group (UFCS), another Insurance - Property and Casualty stock with a Zacks Rank of #1 (Strong Buy) and Value grade of A.

Furthermore, United Fire Group holds a P/B ratio of 0.94 and its industry's price-to-book ratio is 1.46. UFCS's P/B has been as high as 1.02, as low as 0.62, with a median of 0.87 over the past 12 months.

These figures are just a handful of the metrics value investors tend to look at, but they help show that First American Financial and United Fire Group are likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, FAF and UFCS feels like a great value stock at the moment.

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

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