On Nov 25, 2014 shares of First American Financial Corporation (FAF) scaled a 52-week high of $31.93 buoyed by a solid third-quarter earnings beat. With about 1.6 billion shares exchanging hands in the last trading session, shares closed at $31.90, gaining 0.8%.
The year-to-date return from the stock came in at 13.6%, which was ahead of the S&P’s return of 12.3%. With respect to earnings performance, this property and casualty insurer delivered positive surprises in three of the last four quarters with an average beat of 24.9%.
In the third quarter, First American posted earnings of 65 cents per share that surpassed the Zacks Consensus Estimate by 10.2% and improved nearly 18.2% year over year. The outperformance was driven by better performance at its Title segment, which benefited from seasonal strength in the purchase and commercial markets. The Specialty Insurance segment also fared well owing to higher premiums earned in the home warranty as well as property and casualty business lines. The top line also outpaced the Zacks Consensus Estimate by 4.7%.
First American effectively lowered expenses with the total declining 4.2% attributable to a decrease in personnel costs, premiums retained by agents and other operating expenses.
In addition, average revenue per direct order closed improved 20% in the third quarter on an increase in premium purchase as well as refinance and commercial transactions.
Both segments of First American had put up a good show. While the pre-tax margin of Title Insurance and Services rose 10 basis points it increased 630 bps at Specialty Insurance.
Riding on the strong quarterly performance, this Zacks Rank #3 (Hold) stock has been witnessing upward revisions in estimates over the last 60 days. For 2014, the Zacks Consensus Estimate for earnings moved north by 3.2% to $1.91 per share while for 2015, it increased 2.2% to $2.30. The expected long-term earnings growth is 12.4%.
Stocks to Consider
Better-ranked property and casualty insurers include AmTrust Financial Services, Inc. (AFSI), Arch Capital Group Ltd. (ACGL) and Navigators Group Inc. (NAVG). All these stocks sport a Zacks Rank #1 (Strong Buy).
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