FAF Stock Trading at a Discount to Industry at 1.18X: Time to Hold?

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 1.18X is lower than the industry average of 1.56X, the Finance sector’s 4.15X and the Zacks S&P 500 Composite’s 8.12X. The insurer has a Value Score of B.

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 $5.93 billion. The average volume of shares traded in the last three months was 0.9 million.

FAF’s Price Performance

Shares of this insurer have gained 8.6% in the past year. It, however, underperformed the industry’s growth of 19.1%, the Finance sector’s return of 18.9% and the S&P 500 composite’s appreciation of 10.1%.

FAF vs Industry, Sector & S&P 500 in 1 Year

FAF’s Growth Projection Encourages

The Zacks Consensus Estimate for First American’s 2025 earnings per share indicates a year-over-year increase of 14.8%. The consensus estimate for revenues is pegged at $7.00 billion, implying a year-over-year improvement of 14.2%. 

The consensus estimate for 2026 earnings per share and revenues indicates an increase of 20.9% and 12.6%, respectively, from the corresponding 2025 estimates.

Earnings Surprise History

First American surpassed earnings estimates in each of the last four quarters, the average being 21.08%.

Average Target Price for FAF Suggests Upside

Based on short-term price targets offered by four analysts, the Zacks average price target is $77 per share. The average suggests a potential 31% upside from the last closing price.

Bearish Analyst Sentiment on FAF

One of the three analysts covering the stock has lowered estimates for both 2025 and 2026 over the past 60 days. The Zacks Consensus Estimate for 2025 earnings has moved down 3.8% in the past 60 days, while the same for 2026 has moved down 2.2% in the same time frame.

FAF’s Favorable Return on Capital

First American’s return on equity (ROE) of 10% for the trailing 12 months compared favorably with the industry’s 7.8%, 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.

Conclusion

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 should also benefit from favorable growth estimates, as well as the affordability of shares. It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock at present. 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