FAF Lags Industry, Trades at a Discount: What Should Investors Do Now?

Core Viewpoint - First American Financial Corporation (FAF) has shown a year-to-date share price increase of 3.7%, which is below the industry growth of 15.3% but better than the Finance sector's decline of 1.3% and the Zacks S&P 500 composite's decrease of 8.7% [1] Group 1: Performance Metrics - FAF shares are trading significantly above the 50-day moving average, indicating a bullish trend [1] - The average target price for FAF is $76.20 per share, suggesting a potential upside of 17.7% from the last closing price [5] - FAF shares are trading at a price-to-book multiple of 1.35, which is lower than the industry average of 1.65, providing a better entry point for investors [6] Group 2: Market Drivers - Increased demand among millennials for first-time home purchases, expansion of valuation and data businesses, and strength in commercial business are expected to positively impact FAF's performance [2][12] - FAF anticipates modest improvement in both residential purchase and refinance businesses for 2025, driven by housing demand and an improving economy [13] - The company is focused on enhancing its product offerings and expanding its valuation and data businesses, which should drive increased efficiency and margin expansion [14] Group 3: Financial Health - The Zacks Consensus Estimate for 2025 earnings indicates a 19.3% year-over-year increase, while the estimate for 2026 suggests a 17.1% increase [11] - FAF's return on equity in the trailing 12 months was 9.3%, slightly above the industry average of 8.3%, while its return on invested capital (ROIC) was 2.9%, lower than the industry average of 6.4% [17] Group 4: Shareholder Returns - First American distributes wealth to shareholders through dividend hikes and share buybacks, with a dividend yield and payout ratio that exceed the industry average, making it attractive for yield-seeking investors [15]