Revisiting First American Financial’s Valuation After Its Recent Share Price Rebound

First American Financial (FAF) has quietly outperformed the broader insurance space over the past month, and that move is getting investors to revisit what they are really paying for this real estate focused franchise.

See our latest analysis for First American Financial.

The stock is now trading around $64.77. That modest 30 day share price return of 4.23 percent comes after a choppier stretch where the year to date share price return is still positive at 4.65 percent, but the 1 year total shareholder return is slightly negative. Even so, long term holders are sitting on solid total shareholder returns of 37.9 percent over three years and 52.1 percent over five years, suggesting momentum is rebuilding as the market reassesses both growth prospects and real estate related risks.

If FAF has you rethinking where the next steady compounder might come from, this could be a good moment to explore fast growing stocks with high insider ownership.

With earnings still growing, a near 19 percent discount to analyst targets and a long real estate cycle ahead, investors now face a key question: is FAF attractively valued at today’s levels, or is the market already pricing in that future growth?

Most Popular Narrative: 17.5% Undervalued

With First American Financial closing at $64.77 against a narrative fair value of $78.50, the story hinges on whether accelerating earnings can sustain that valuation gap.

The anticipated normalization and eventual rebound in U.S. home purchase volumes driven by demographic tailwinds as Millennials and Gen Z enter prime homebuying years positions First American to benefit from increased transaction activity, underpinning future revenue growth and operating leverage.

Read the complete narrative.

Want to see how rising volumes, expanding margins, and a lower future earnings multiple can still justify a higher value? The narrative’s math may surprise you.

Result: Fair Value of $78.5 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, stubbornly weak housing demand and the normalization of currently strong commercial activity could quickly narrow margins and challenge the optimistic earnings trajectory.

Find out about the key risks to this First American Financial narrative.

Another View: Market Ratios Send a Different Signal

While the narrative fair value points to upside, our checks on simple valuation ratios paint a cooler picture. FAF trades on a 13.7x price to earnings ratio, slightly above the US Insurance industry at 13.1x and well ahead of peer averages at 11.1x, suggesting less obvious bargain territory.

The fair ratio for FAF sits a touch higher at 14.5x, implying the market is not wildly offside but also not leaving large mispricing on the table. With the share price already above our estimate of fair value at $18.20 based on cash flows, investors need to ask how much margin of safety they really have if growth underwhelms or real estate headwinds persist.

See what the numbers say about this price — find out in our valuation breakdown.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out First American Financial for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 915 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own First American Financial Narrative

If this perspective does not quite align with your own, or you would rather dig into the numbers yourself, you can craft a personalized view in just a few minutes: Do it your way.

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding First American Financial.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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