First American Financial (FAF) AI Stock Analysis

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First American Financial

(NYSE:FAF)

66Neutral

First American Financial's overall score reflects stable financial performance and positive earnings call highlights, particularly in commercial and refinance revenue growth. However, technical indicators show potential short-term weakness, and the high P/E ratio indicates possible overvaluation. While the dividend yield adds value, challenges in residential origination and tech costs are key risks to watch.

First American Financial (FAF) vs. S&P 500 (SPY)

Market Cap

$6.30B

Dividend Yield3.59%

Average Volume (3M)872.31K

Price to Earnings (P/E)40.6

Beta (1Y)0.73

Revenue Growth0.96%

EPS Growth-27.04%

CountryUS

Employees19,038

SectorFinancial

Sector Strength87

IndustryInsurance - Specialty

Share Statistics

EPS (TTM)0.71

Shares Outstanding102,900,000

10 Day Avg. Volume797,408

30 Day Avg. Volume872,314

Financial Highlights & Ratios

PEG Ratio1.87

Price to Book (P/B)1.27

Price to Sales (P/S)0.00

P/FCF Ratio11.11

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$75.67

Price Target Upside26.50% Upside

Rating ConsensusStrong Buy

Number of Analyst Covering4

First American Financial Business Overview & Revenue Model

Company DescriptionFirst American Financial Corporation, through its subsidiaries, provides financial services. It operates through Title Insurance and Services, and Specialty Insurance segments. The Title Insurance and Services segment issues title insurance policies on residential and commercial property, as well as offers related products and services. This segment also provides closing and/or escrow services; products, services, and solutions to mitigate risk or otherwise facilitate real estate transactions; and appraisals and other valuation-related products and services, lien release and document custodial services, warehouse lending services, default-related products and services, mortgage subservicing, and related products and services, as well as banking, trust, and wealth management services. In addition, it accommodates tax-deferred exchanges of real estate; and maintains, manages, and provides access to title plant data and records. This segment offers its products through a network of direct operations and agents in 49 states and in the District of Columbia, as well as in Canada, the United Kingdom, Australia, South Korea, and internationally. The Specialty Insurance segment provides property and casualty insurance comprising coverage to residential homeowners and renters for liability losses and typical hazards, such as fire, theft, vandalism, and other types of property damage. It also offers residential service contracts that cover residential systems, such as heating and air conditioning systems, and appliances against failures that occur as the result of normal usage during the coverage period. First American Financial Corporation was founded in 1889 and is headquartered in Santa Ana, California.

How the Company Makes MoneyFirst American Financial makes money primarily through its title insurance and services segment, which accounts for the majority of its revenue. The company generates income by providing title insurance policies that protect real estate owners and lenders against potential defects in property titles. In addition to title insurance premiums, First American earns revenue from various settlement services, including closing and escrow services, which are essential in completing real estate transactions. The company also offers valuation and data solutions that provide additional revenue streams. Significant partnerships with real estate agents, lenders, and developers further enhance its business by ensuring a consistent flow of transactions requiring its services. External factors such as the overall health of the real estate market and interest rate fluctuations can significantly influence the company's earnings.

First American Financial Financial Statement Overview

Summary

First American Financial demonstrates stable financial health with strong EBIT and gross profit margins. However, declining revenue and moderate profitability indicate potential areas for improvement. The balance sheet shows a balanced leverage use and a stable capital structure, while cash flow is efficiently generated but volatile.

Income Statement

Positive

Despite a declining revenue trend in recent periods, the company maintains a positive EBIT margin of 8.36% TTM. The gross profit margin is robust at 130.83% in the TTM period, though impacted by revenue decline. Net profit margin stands at 3.46% TTM, indicating moderate profitability with potential for improvement.

Balance Sheet

Positive

The debt-to-equity ratio is 0.50 TTM, reflecting a balanced use of leverage in financing. Return on Equity (ROE) is 3.16% TTM, showing modest returns on shareholder investments. The equity ratio is 32.39%, indicating a stable capital structure, although there is room for strengthening equity positions.

Cash Flow

Positive

Operating cash flow remains strong with a ratio of 4.89 to net income, indicating efficient cash generation from operations. The free cash flow to net income ratio is 3.57, highlighting strong cash flow capabilities. However, free cash flow growth rate shows volatility, pointing to potential cash management challenges.

TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
4.58B	6.12B	938.50M	7.61B	9.22B	7.09B
	Gross Profit
6.00B	6.12B	-128.50M	5.26B	9.22B	5.97B
	EBIT
383.50M	165.40M	401.50M	326.00M	419.00M	-94.16M
	EBITDA
282.20M	522.40M	595.40M	585.70M	0.00	1.13B
	Net Income Common Stockholders
158.60M	131.10M	216.80M	263.00M	1.24B	696.00M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
2.05B	1.72B	3.61B	1.22B	1.23B	1.28B
	Total Assets
15.50B	14.91B	16.80B	19.64B	16.47B	12.81B
	Total Debt
2.51B	2.42B	1.39B	2.28B	2.46B	1.01B
	Net Debt
403.80M	616.80M	-2.21B	1.06B	1.23B	-264.71M
	Total Liabilities
10.46B	9.98B	11.94B	14.96B	10.68B	7.89B
	Stockholders Equity
5.02B	4.91B	4.85B	4.67B	5.77B	4.91B
Cash Flow		Free Cash Flow
567.10M	679.20M	90.90M	520.00M	1.06B	970.58M
	Operating Cash Flow
775.40M	897.50M	354.30M	780.00M	1.22B	1.08B
	Investing Cash Flow
-465.90M	-458.70M	599.50M	-395.00M	-3.39B	-1.42B
	Financing Cash Flow
239.20M	-2.31B	1.42B	-376.00M	2.13B	113.92M

First American Financial Technical Analysis

Technical Analysis Sentiment

Negative

Last Price59.82

Price Trends

50DMA

62.47

Negative

100DMA

62.34

Negative

200DMA

62.72

Negative

Market Momentum

MACD

-0.40

Negative

RSI

44.00

Neutral

STOCH

33.16

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For FAF, the sentiment is Negative. The current price of 59.82 is below the 20-day moving average (MA) of 60.39, below the 50-day MA of 62.47, and below the 200-day MA of 62.72, indicating a bearish trend. The MACD of -0.40 indicates Negative momentum. The RSI at 44.00 is Neutral, neither overbought nor oversold. The STOCH value of 33.16 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for FAF.

First American Financial Risk Analysis

First American Financial disclosed 29 risk factors in its most recent earnings report. First American Financial reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

First American Financial Peers Comparison

Overall Rating

UnderperformOutperform

Sector (64)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
ACT	84 Outperform	$5.44B	8.22	14.09%	2.05%	4.33%	10.21%
MTG	79 Outperform	$6.21B	8.70	15.12%	1.93%	4.64%	15.36%
RDN	78 Outperform	$4.51B	8.62	13.22%	2.95%	2.95%	4.08%
ESNT	78 Outperform	$6.05B	8.57	13.29%	1.96%	9.87%	3.41%
FAF	66 Neutral	$6.30B	40.61	3.23%	3.59%	0.96%	-27.04%
Sector *	64 Neutral	$12.60B	9.73	7.92%	16985.68%	12.21%	-5.61%
FNF	55 Neutral	$17.65B	13.88	14.72%	3.39%	4.40%	33.32%

* Financial Sector Average

Performance Comparison

FAF

First American Financial

59.82

5.80

10.74%

FNF

Fidelity National Financial

57.87

8.18

16.46%

MTG

MGIC Investment

26.17

5.53

26.79%

RDN

Radian Group

33.53

3.01

9.86%

ESNT

Essent Group

58.53

3.30

5.98%

ACT

Enact Holdings

36.13

5.23

16.93%

First American Financial Earnings Call Summary

Earnings Call Date:Apr 23, 2025

(Q1-2025)

% Change Since: 0.20%|

Next Earnings Date:Jul 23, 2025

Earnings Call Sentiment Neutral

The earnings call presented a mixed outlook, with significant growth in commercial and refinance revenue but ongoing challenges in residential origination and purchase orders. The company is recognized as a great place to work and is making strides in technology and investment income. However, redundant tech costs and margin impacts from investments are notable concerns.

Q1-2025 Updates

Positive Updates

Commercial Revenue Growth

Commercial revenue was up twenty-nine percent this quarter, indicating a meaningful improvement from last year, with strength across asset classes and geographies.

Refinance Revenue Increase

Refinance revenue climbed forty percent compared with last year, primarily due to a twenty-eight percent improvement in closed orders.

Recognition as a Great Place to Work

Named one of the one hundred best companies to work for by Great Places to Work and Fortune magazine for the tenth consecutive year.

Investment Income Increase

Investment income was $138 million in the first quarter, up $21 million compared with the same quarter of last year, primarily due to higher interest income.

Negative Updates

Decline in Residential Origination

Residential originations continue to be at trough levels, impacting the core Title and Escrow business.

Purchase Orders Decline

Open purchase orders for the first three weeks in April were down four percent, indicating ongoing challenges in the purchase market.

Impact of Redundant Tech Costs

Carrying redundant tech costs due to supporting both new modern systems and legacy tech, affecting short-term costs and productivity.

Margin Impact from Endpoint and Sequoia

The margin impact from Endpoint and Sequoia was a hundred and thirty basis points, impacting overall financial performance.

Company Guidance

During the First American Financial Corporation's first quarter 2025 earnings call, several key financial metrics and business updates were highlighted. The company reported GAAP earnings of $0.71 per diluted share and adjusted earnings of $0.84 per diluted share, which exclude net investment losses and purchase-related intangible amortization. Title segment revenue increased by 12% to $1.5 billion compared to the same quarter in 2024, with commercial revenue showing a significant 29% improvement to $184 million. Purchase revenue rose by 1%, driven by an 8% increase in average revenue per order, despite a 6% decline in closed orders, while refinance revenue surged 40% with closed orders improving by 28%. The company's home warranty segment generated $108 million in revenue, maintaining a 2% increase year-over-year, with a pretax margin of 22.9%. Additionally, investment income rose by $21 million to $138 million, primarily due to higher interest income. The company's effective tax rate was slightly below the normalized rate at 22.6%, and the debt-to-capital ratio was reported at 31.2%. In terms of share repurchases, First American bought back 448,000 shares for $28 million in the first quarter and continued to repurchase shares in April. The guidance underlined the company's optimistic outlook, particularly in commercial real estate, and its ongoing emphasis on technology and data to enhance operational efficiency and customer experience.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.