FAF Stock Trading at a Discount to Industry at 1.2X: Time to Buy?

First American Financial Corporation FAF shares are trading at a discount to the Zacks Property and Casualty Insurance industry. Its forward price-to-book value of 1.2X is lower than the industry average of 1.49X, the Finance sector’s 4.26X and the Zacks S&P 500 Composite’s 8.15X. The insurer has a Value Score of A.

Shares of RenaissanceRe Holdings Ltd. RNR, NMI Holdings Inc. NMIH and Axis Capital Holdings Limited AXS are also trading at a discount to the industry average.

The insurer has a market capitalization of $6.40 billion. The average volume of shares traded in the last three months was 0.7 million.

FAF’s Price Performance

Shares of this insurer have gained 0.6% in the year-to-date period. It, however, underperformed the industry’s growth of 10.1%.

FAF’s Growth Projection Encourages

The Zacks Consensus Estimate for First American’s 2025 earnings per share indicates a year-over-year increase of 25.2%. The consensus estimate for revenues is pegged at $7.26 billion, implying a year-over-year improvement of 18.4%. 

The consensus estimate for 2026 earnings per share and revenues indicates an increase of 13.7% and 8.4%, respectively, from the corresponding 2025 estimates.

Earnings Surprise History

First American surpassed earnings estimates in each of the last four quarters, the average being 21.1%.

Optimistic Analyst Sentiment for FAF

Each of the three analysts covering the stock has raised estimates for 2025 and 2026 over the past 30 days. Thus, the Zacks Consensus Estimate for 2025 and 2026 earnings has moved north 7.8% and 3.6%, respectively, in the past 30 days.

Average Target Price for FAF Suggests Upside

Based on short-term price targets offered by five analysts, the Zacks average price target is $76.80 per share. The average suggests a potential 22.2% upside from the last closing price.

FAF’s Favorable Return on Capital

First American’s return on equity of 11% for the trailing 12 months compared favorably with the industry’s 8%, reflecting the company’s efficiency in utilizing shareholders’ funds.

Key Drivers of FAF Stock

First American stands to gain from 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 positions FAF well for long-term growth. 

FAF expects modest improvement in both residential purchase and refinance businesses for 2025. The company is witnessing early stabilization in the purchase market and thus expects housing demand, improving economy and labor markets to continue to drive home price appreciation.

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 its 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. Its dividend yield as well as payout ratio is better than the industry average, making it an attractive pick for yield-seeking investors.

End Notes

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 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 impressive dividend history, solid growth projections, as well as optimistic analyst sentiment and higher return on equity, 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.

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

Zacks Investment Research