Zacks rates FAF stock a buy on low valuation and growth

Zacks Investment Research rates First American Financial Corporation shares a Zacks Rank #2 Buy, citing a valuation discount and projected earnings growth. The insurer's 12-month trailing price-to-book value stands at 1.12 times, a figure lower than the industry average of 1.43 times, the Finance sector average of 4.35 times, and the Zacks S&P 500 composite average of 7.37 times. First American holds a Value Score of A and a VGM Score of A.

The company has a market capitalization of $6.34 billion, with an average trading volume of 0.9 million shares over the last three months. First American's trailing 12-month return on equity is 13.3%, compared to the industry's 7.5%. Over the past year, the stock has risen 3.9%, underperforming the industry growth of 4.8%. Five analysts have provided short-term price targets, resulting in a Zacks average target of $86 per share, which implies a potential 38.3% upside from the last closing price.

The Zacks Consensus Estimate for 2026 earnings per share indicates a year-over-year increase of 17.7%, with revenues pegged at $8.2 billion, an improvement of 9.8% from the prior year. For 2027, the consensus estimate projects EPS and revenues to increase by 4.2% and 7.4%, respectively, from the 2026 estimates. The expected long-term earnings growth rate is 15.2%. In the past 30 days, one upward earnings estimate revision occurred for both 2026 and 2027, causing the consensus estimates to rise by 0.1% and 0.3%, respectively.

First American is one of the largest title insurers in the United States, with competitive advantages derived from its nationwide distribution network, agent relationships, proprietary title plants, and underwriting expertise. Management anticipates that commercial average revenue per order will hold firm during the latter half of next year, driven by an active deal pipeline and an increase in high-value transactions. Meanwhile, expanding operations at First American Trust are becoming a key source of earnings, as deposit growth fueled by ServiceMac and other non-title ventures adds to long-term revenue diversity.

The company is positioned to benefit from rising investment in data centers, with transaction opportunities including land purchases, construction loans, and takeout refinancing supporting commercial title insurance growth. First American is deploying AI across its operations through platforms such as Endpoint, SEQUOIA, ExamAssist QC, and ServiceMac to expand automation and reduce manual workloads. The company maintains strong financial flexibility with substantial cash, investments, and shareholders' equity, supporting strategic acquisitions and a dividend yield of approximately 3%, which is higher than the industry average of 0.2%.

Risks include elevated mortgage rates, affordability challenges, and low housing inventory pressuring home purchase activity and title insurance revenues. A strong dependence on commercial title insurance remains a risk, as a slowdown in commercial real estate transactions could weigh on revenue growth and earnings.