Fidelity National's Stock Lags Industry: Is it a Hold or Fold?

Company Performance - Shares of Fidelity National Financial (FNF) have gained 14.5% year to date, underperforming the industry's increase of 28.1% and the S&P 500 composite's increase of 18% [1] - The bottom line of FNF has continually dropped from 2021 to 2023, declining 77.4%, while revenues declined 24.9% during the same period [1] - Earnings per share (EPS) missed the consensus estimate in the last two reported quarters of 2024 [1] Market Conditions - FNF's transaction volumes were affected as U.S. home sales suffered due to higher mortgage rates, with refinance orders declining 1% year over year in Q2 2024 [2] - The average rate on the 30-year fixed-rate mortgage dropped to 6.47% as of August 8 from 6.73% a week prior, indicating a positive development for the housing market [2] - An interest rate cut is likely in the September FOMC, with each 25-basis point decrease expected to result in an approximate $15 million annualized decline in FNF's interest and investment income [3] Financial Metrics - Notes payable increased 7.4% as of June 30, 2024, with leverage deteriorating to 52.3, which is 182 basis points worse than the previous period [4] - FNF's return on equity in the trailing 12 months was 9.5%, better than the industry average of 6.2%, reflecting efficiency in utilizing shareholders' funds [10] Growth Projections - The Zacks Consensus Estimate for FNF's 2024 earnings is pegged at $4.58, indicating a 29% increase from the year-ago figure on 9.9% higher revenues of $12.9 billion [11] - The consensus estimate for 2025 earnings is pegged at $5.63, indicating a 23.1% increase year over year on 9.2% higher revenues of $14.1 billion [11] Dividend History - FNF has increased dividends at a 10-year CAGR of 9.7%, with a dividend yield of 3.3%, better than the industry average of 0.3% [12] Strategic Positioning - Fidelity National has a market-leading position in residential purchase, refinance, and commercial markets, providing a scale advantage [6] - The strategic acquisition of F&G Annuities & Life helps shield FNF from volatility in the core title insurance business [6] - FNF is investing in technology to enhance its market-leading position amid accelerated digitalization in the industry [7] Conclusion - FNF is positioned for growth due to its market-leading position, higher direct premiums, strong origination demand, and effective capital deployment [13]