Here's Why Wait & See Style Is Apt for First American (FAF)

Core Viewpoint - First American Financial (FAF) is expected to grow due to increased demand for first-time home purchases among millennials, along with expansion in valuation and data businesses, strength in commercial business, and technological upgrades [1] Growth Projections - The company anticipates a three-year CAGR of 11.3% for EPS by 2026 [3] - The top line is expected to increase at a three-year CAGR of 8.2% by 2026, driven by growing direct premiums, escrow fees, and title agent premiums [13] Recent Performance - Shares have gained 8.5% in the past month, outperforming the industry's growth of 7.6% and the Finance sector's decline of 1% [2] Financial Metrics - The Zacks Consensus Estimate for 2024 earnings is $3.83, reflecting a 0.8% increase on revenues of $6.3 billion, while the 2025 earnings estimate is $5.12, indicating a 33.8% increase on revenues of $6.9 billion [11] - FAF's trailing 12-month return on equity (ROE) is 8.2%, surpassing the industry average of 7.8% [12] - The company has a solid track record of dividend increases, with an eight-year CAGR of 8.2% from 2016 to 2024, and a dividend yield of 3.9% compared to the industry average of 0.3% [14] Strategic Initiatives - Strategic initiatives include strengthening product offerings, focusing on core business, and expanding valuation and data businesses, which are expected to enhance efficiency [5] - The company has $210.4 million remaining under its share buyback authorization as of March 31, 2024 [6] Market Conditions - The company estimates that for each 25-basis point decline in the Fed funds rate, annualized investment income will decrease by $15 million, with fluctuations depending on cash and escrow balances [7] - Increased demand for first-time home purchases among millennials is expected to drive results, supported by improving economic conditions and labor markets [19]