David Zhang

First American Financial: Multiple Levers Towards Success With A Hedge Against Rising Rates

First American Financial Corporation (NYSE:FAF)

Unrecognized, Unloved, and Undervalued

We initiate coverage on First American Financial at Buy with a target price of $47.18. FAF is a high quality pure play title insurer with a solid 26.7% market share and a business primed towards the recovering housing market, a return to high margin products, a near-term decrease in operating costs, and gross underleverage. In our view, FAF is a fundamentally solid company in a cyclical industry upswing that is currently being undervalued by the Street, trading at 0.37x EV/T12M Sales and 1.61x Price/Tangible BV.

    Increasing rates and decreasing refinance volume will hinder growth in the short term. Refinance open orders per day have fallen from 3,100 in May...
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