On Thursday, Truist Securities updated its outlook on First American Financial Corporation (NYSE:FAF), increasing the price target from $65 to $68 while maintaining a Buy rating on the company's shares. The firm's decision comes after a reassessment of the company's earnings potential, prompted by better-than-expected performance in the second quarter.
The analyst from Truist Securities has revised the full-year 2024 earnings per share (EPS) forecast for First American Financial to $3.90, up from the previous estimate of $3.70. This adjustment reflects the company's recent financial results, which surpassed expectations, particularly in the second quarter. Despite this change, the firm's 2025 EPS estimate remains unchanged at $4.90.
First American Financial has shown signs of returning to positive growth, with notable improvements in its commercial business and the now smaller refinancing category. Additionally, the company is expected to benefit from the current trend of falling interest rates, which is likely to stimulate activity in the property purchase sector.
The upgraded price target to $68 is based on nearly 14 times the firm's 2025 earnings projection. Truist Securities believes that First American Financial is experiencing a fundamental inflection point. With the housing and commercial real estate markets poised for increased activity, the firm anticipates that investors will show a greater interest in stocks that are positioned to capitalize on these sectors.
In other recent news, First American Financial Corporation reported mixed Q1 results. Amid a challenging real estate and mortgage environment, the company saw a 2% dip in title segment revenue to $1.3 billion. However, signs of recovery were evident with a 5% increase in open resale orders in March and a 2% increase in April. The company's home warranty segment reported a 1% revenue increase and a significant 28% rise in pre-tax income.
In addition, Keefe, Bruyette & Woods maintained its Outperform rating on First American Financial shares with a steady $67.00 price target. The firm's analysis pointed to First American Financial's unique position within the title industry, thanks to its wholly owned subsidiary, First American Trust.
Adding to the company's recent developments, Mother Lode Holding Company, a subsidiary of First American Financial, has acquired Wisconsin Title Service Company. This acquisition expands Mother Lode's presence into Wisconsin, aligning the 75-year-old Wisconsin Title Service Company with Mother Lode's portfolio of title insurance, underwriting, and escrow services.
InvestingPro Insights
First American Financial Corporation's (NYSE:FAF) dedication to shareholder returns is evident, with the company having raised its dividend for 15 consecutive years, showcasing its stability and commitment to investors. Additionally, the InvestingPro platform notes that analysts predict the company will remain profitable this year, reinforcing the positive outlook presented by Truist Securities. While some analysts have revised their earnings downwards for the upcoming period, First American Financial's performance over the last twelve months indicates a solid foundation, marked by a gross profit margin of 62.31% and an EBITDA growth of 13.96%.
Investors considering First American Financial may also weigh the company's current valuation metrics; with a P/E ratio of 30.88 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 27.54, it is trading at a high multiple relative to near-term earnings growth, which is reflected in a PEG ratio of 6.71. Despite the recent revenue decline of -14.76% over the last twelve months, the company's dividend yield stands at a notable 3.71%, which could be attractive for income-focused investors.
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