FAF Stock Trading at a Discount to Industry at 1.18X: Time to Hold?

Core Insights - First American Financial Corporation (FAF) shares are trading at a discount compared to the Zacks Property and Casualty Insurance industry, with a forward price-to-book value of 1.18X, lower than the industry average of 1.56X, the Finance sector's 4.15X, and the S&P 500 Composite's 8.12X [1] - The company has a market capitalization of $5.93 billion and an average trading volume of 0.9 million shares over the last three months [2] - FAF's stock has gained 8.6% over the past year, underperforming the industry's growth of 19.1%, the Finance sector's return of 18.9%, and the S&P 500 composite's appreciation of 10.1% [3] Growth Projections - The Zacks Consensus Estimate for FAF's 2025 earnings per share indicates a year-over-year increase of 14.8%, with revenues projected at $7.00 billion, reflecting a 14.2% year-over-year improvement [5] - For 2026, the consensus estimates suggest an increase of 20.9% in earnings per share and 12.6% in revenues compared to 2025 [9] Business Outlook - FAF anticipates modest improvements in both residential purchase and refinance businesses for 2025, driven by direct premiums, escrow fees, and title agent premiums [8] - The company expects increased demand for first-time home purchases among millennials, supported by a favorable economic environment and labor market [15][16] - The title insurer is focused on enhancing its product offerings, improving core business operations, and expanding valuation and data services [17] Financial Performance - FAF has surpassed earnings estimates in each of the last four quarters, with an average surprise of 21.08% [10] - The average target price for FAF shares is $77, suggesting a potential upside of 31% from the last closing price [11] Shareholder Returns - First American distributes wealth to shareholders through dividend hikes and share buybacks, with a dividend yield and payout ratio better than the industry average [18] - The company is well-positioned for long-term growth due to its leadership in title data, strong distribution relationships, and continued investments in technology [16]