Shares of First American Financial Corporation FAF have risen 20.8% in the past year, outperforming the industry’s growth of 6%. The stock closed at $70.26 on Thursday, near its 52-week high of $71.47, reflecting investor confidence.
The rally has been driven by strong operating performance, robust commercial title insurance activity and higher investment income. Continued technology investments, disciplined capital deployment and strength in the commercial title business are expected to support earnings growth. While the residential housing market remains weak due to elevated mortgage rates and affordability challenges, a gradual recovery in home purchase activity could provide a further upside.
1-Year Price Performance: FAF, RNR, AXS, NMIH & Industry
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Shares of some other insurers like RenaissanceRe Holdings Ltd. RNR, NMI Holdings Inc. NMIH and Axis Capital Holdings Limited AXS have gained 31%, 8.2% and 16.8% respectively in the past year.
Average Target Price for FAF Suggests Upside
Based on short-term price targets offered by five analysts, the Zacks average price target is $85.80 per share. The average suggests a potential 22.5% upside from the last closing price.
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FAF Shares Are Affordable
Despite the rally, First American shares are trading at a discount to the industry. Its 12-month trailing price-to-book value of 1.30X is lower than the industry average of 1.47X. The insurer has a Value Score of A.
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Shares of RenaissanceRe, NMI Holdings and Axis Capital are also trading at a discount to the industry average.
FAF’s Growth Projection Encourages
The Zacks Consensus Estimate for First American’s 2026 earnings per share (EPS) indicates a year-over-year increase of 11.6%. The consensus estimate for revenues is pegged at $7.9 billion, implying a year-over-year improvement of 6.4%.
The consensus estimate for 2027 EPS and revenues indicates an increase of 5.8% and 5.7%, respectively, from the corresponding 2026 estimates.
The expected long-term earnings growth rate is 15.2%, outperforming the industry average of 7.2%. FAF has a Growth Score of B.
Optimist Analyst Sentiment on FAF
The company has witnessed one upward earnings estimate revision for 2026 and 2027 over the past 60 days, against one movement in the opposite direction, respectively. Thus, the Zacks Consensus Estimate for 2026 and 2027 earnings has moved up 0.4% and 0.1%, respectively, in the past 60 days.
FAF’s Efficient Use of Shareholder Capital
First American’s trailing 12-month return on equity of 24% compared favorably with the industry’s 7.4%, reflecting the company’s efficiency in utilizing shareholders’ funds.
Key Drivers of FAF Stock
Commercial title insurance remains FAF's primary growth engine. The company continues to benefit from strong demand for large commercial transactions, particularly in data centers, energy and industrial projects. Higher transaction volumes and larger deal sizes have driven record commercial title revenue, and management expects 2026 to be another record year for the business, supported by a healthy pipeline of high-value transactions.
The company is deploying AI across its operations through platforms such as Endpoint and SEQUOIA, automating title decisioning and escrow workflows. These initiatives are expected to improve operating efficiency, expand margins and strengthen long-term earnings growth.
The title insurer remains focused on strengthening its product offerings, enhancing its core business, and expanding its valuation and data businesses. The expansion of title plant assets and the upgrade of technology solutions drive increased efficiency.
Higher investment income continues to support earnings growth. In the first quarter of 2026, investment income increased 12% year over year to $154 million. The company is benefiting from rising deposit balances, including commercial escrow, 1031 exchange and agent banking deposits, while optimizing its investment portfolio toward higher-yielding securities.
First American distributes wealth to shareholders via dividend hikes and share buybacks. The remaining $248 million under its share repurchase authorization provides flexibility for shareholder-friendly capital deployment. Its dividend yield and payout ratio are better than the industry average, making it an attractive pick for yield-seeking investors.
Risks for FAF
Elevated mortgage rates, affordability challenges and low housing inventory continue to pressure home purchase activity and title insurance revenues.
FAF's strong dependence on commercial title insurance also remains a risk. A slowdown in commercial real estate transactions could weigh on FAF's revenue growth and earnings.
Conclusion
Strength in commercial business, rising investment income, Continued investments in technology and disciplined capital deployment should favor FAF’s results. Weak residential housing market and dependence on commercial title are headwinds
FAF’s a VGM Score of A instils confidence. Given impressive dividend history, solid growth projections and higher return on equity, it is wise to retain this Zacks Rank #3 (Hold) insurer. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
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First American Financial Corporation (FAF): Free Stock Analysis Report
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Axis Capital Holdings Limited (AXS): Free Stock Analysis Report
NMI Holdings Inc (NMIH): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).