First American Financial Upped to Strong Buy - Analyst Blog

On May 13, Zacks Investment Research upgraded First American Financial Corporation FAF to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The rank upgrade for this Property & Casualty insurer was driven by strong estimate revisions on the back of impressive first-quarter 2014 results. Notably, with this, the company has delivered positive earnings surprises in the trailing 4 quarters with an average beat of 30.9%. Further, First American Financial's expected EPS growth now stands at 10.0%.

On Apr 24, First American Financial released its first-quarter 2014 results. Net income per share came in at 20 cents, outpacing the Zacks Consensus Estimate of 10 cents. However, the reported figure was down 28.6% year over year.

Results benefited from lower expenses, partially offset by a decline in top line.

First American Financial's top line fell 12.0% year over year to $1.0 billion, primarily owing to lower direct premiums and escrow fees as well as agent premium. However, a fall of more than 10% in expenses to $977.5 million was impressive.

Closed orders per day during the quarter declined 38.0% due to a significant decrease in refinance orders.

Title orders opened in the quarter were 271.2 million, down 28.0% year over year. Title orders closed in the quarter were 180.1 million, down 38.1% year over year.

Average revenue per direct order in the reported quarter improved 39% due to higher purchase and commercial mix.

The Zacks Consensus Estimate for 2014 advanced 9.9% to $1.89 per share over the past 30 days. Also, for 2015, it moved north 1.5% to $2.09 per share.

Other Stocks to Consider

Other stocks in this space worth considering include Alleghany Corporation Y, OneBeacon Insurance Group, Ltd. OB and Allied World Assurance Company Holdings, AG AWH. All three stocks hold the same rank as First American Financial.