Why Is First American Financial (FAF) Up 3.9% Since Last Earnings Report?

Taking full advantage of the stock market and investing with confidence are common goals for new and old investors, and Zacks Premium offers many different ways to do both.

Featuring daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, the research service can help you become a smarter, more self-assured investor.

Zacks Premium includes access to the Zacks Style Scores as well.

What are the Zacks Style Scores?

Developed alongside the Zacks Rank, the Zacks Style Scores are a group of complementary indicators that help investors pick stocks with the best chances of beating the market over the next 30 days.

Each stock is assigned a rating of A, B, C, D, or F based on their value, growth, and momentum characteristics. Just like in school, an A is better than a B, a B is better than a C, and so on -- that means the better the score, the better chance the stock will outperform.

The Style Scores are broken down into four categories:

Value Score

Value investors love finding good stocks at good prices, especially before the broader market catches on to a stock's true value. Utilizing ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and many other multiples, the Value Style Score identifies the most attractive and most discounted stocks.

Growth Score

While good value is important, growth investors are more focused on a company's financial strength and health, and its future outlook. The Growth Style Score takes projected and historic earnings, sales, and cash flow into account to uncover stocks that will see long-term, sustainable growth.

Momentum Score

Momentum traders and investors live by the saying "the trend is your friend." This investing style is all about taking advantage of upward or downward trends in a stock's price or earnings outlook. Employing factors like one-week price change and the monthly percentage change in earnings estimates, the Momentum Style Score can indicate favorable times to build a position in high-momentum stocks.

VGM Score

If you want a combination of all three Style Scores, then the VGM Score will be your friend. It rates each stock on their combined weighted styles, helping you find the companies with the most attractive value, best growth forecast, and most promising momentum. It's also one of the best indicators to use with the Zacks Rank.

How Style Scores Work with the Zacks Rank

The Zacks Rank is a proprietary stock-rating model that harnesses the power of earnings estimate revisions, or changes to a company's earnings expectations, to help investors build a successful portfolio.

Investors can count on the Zacks Rank's success, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988, more than double the S&P 500's performance. But the model rates a large number of stocks, and there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day.

But it can feel overwhelming to pick the right stocks for you and your investing goals with over 800 top-rated stocks to choose from.

That's where the Style Scores come in.

You want to make sure you're buying stocks with the highest likelihood of success, and to do that, you'll need to pick stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you like a stock that only as a #3 (Hold) rank, it should also have Scores of A or B to guarantee as much upside potential as possible.

Since the Scores were created to work together with the Zacks Rank, the direction of a stock's earnings estimate revisions should be a key factor when choosing which stocks to buy.

A stock with a #4 (Sell) or #5 (Strong Sell) rating, for instance, even one with Scores of A and B, will still have a declining earnings forecast, and a greater chance its share price will fall too.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: Travelers (TRV)

Established in 1853 and is based in New York, NY, The Travelers Companies Inc., a holding company, is principally engaged, through its subsidiaries, in providing a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States. and select international markets.

TRV is a #3 (Hold) on the Zacks Rank, with a VGM Score of A.

Additionally, the company could be a top pick for growth investors. TRV has a Growth Style Score of B, forecasting year-over-year earnings growth of 42.3% for the current fiscal year.

13 analysts revised their earnings estimate higher in the last 60 days for fiscal 2024, while the Zacks Consensus Estimate has increased $1.49 to $18.68 per share. TRV also boasts an average earnings surprise of 25.4%.

With a solid Zacks Rank and top-tier Growth and VGM Style Scores, TRV should be on investors' short list.

Zacks Investment Research

NMI Holdings Inc. NMIH shares have rallied 39.5% in a year compared with the industry's growth of 29.6%. The Finance sector and the Zacks S&P 500 composite have returned 30.2% and 30%, respectively, in the same time frame. With a market capitalization of $3.02 billion, the average volume of shares traded in the last three months was 0.5 million. Currently priced at $38.27, the stock is a little below its 52-week high of $42.49.

NMIH Outperforms Industry, Sector, S&P in a Year

The rally was largely driven by an improving mortgage insurance portfolio, higher new insurance written volume, a comprehensive reinsurance program, its solid capital position and effective capital deployment.

This insurer has a solid track record of beating earnings estimates in each of the last four quarters, the average being 9.69%.

NMIH Trading Above 200-Day Moving Average

This Zacks Rank #3 (Hold) property and casualty insurer is trading above its 200-day simple moving average (SMA) of $35.16, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

NMIH’s Growth Projection Encourages

The Zacks Consensus Estimate for NMI Holdings’ 2024 earnings per share indicates a year-over-year increase of 17.9%. The consensus estimate for revenues is pegged at $652.38 million, implying a year-over-year improvement of 12.6%.

The consensus estimate for 2025 earnings per share and revenues indicates an increase of 4.4% and 7.6%, respectively, from the corresponding 2024 estimates.

NMI Holdings’ Favorable Return on Capital

Return on equity (ROE) for the trailing 12 months was 17.8%, comparing favorably with the industry’s 7.5%. This reflects its efficiency in utilizing shareholders’ funds.

Also, return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame. This reflects NMIH’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 14.3%, better than the industry average of 5.8%.

Will NMIH’s Rally Stay?

The Zacks Consensus Estimate for 2024 earnings has moved 0.6% north in the past 30 days, reflecting analysts’ optimism.

Per the Federal Reserve, the U.S. residential mortgage market is one of the largest in the world, with nearly $13 trillion of mortgage debt outstanding as of Dec. 31, 2023, and includes both primary and secondary components. NMIH stands to gain from new business opportunities from a growing mortgage insurance market. NMI Holdings’ mortgage insurance portfolio is expected to create a strong foundation for future earnings.

Growth in monthly and single premium policy production is tied to the increased penetration of existing customer accounts. New customer account activation will also drive results.

In order to enhance its return profile, absorb losses, provide efficient growth capital and mitigate the impact of credit volatility, NMI Holdings has a comprehensive reinsurance program for its in-force portfolio.

To drive margin expansion, NMIH remains focused on efficiency and expense management. NMI Holdings engages in share buybacks and has a $108.1 million share repurchase program under its kitty.

All these together should help the insurer continue to generate solid mid-teens shareholders’ returns.

The expected long-term growth rate is pegged at 9.1%. Notably, earnings grew 18.7% in the past five years, better than the industry average of 11.4%. NMI Holdings’ superior primary insurance in-force portfolio generates industry-leading growth.

Attractive Valuation

NMIH’s shares are trading at a price-to-book multiple of 1.39, lower than the industry average of 1.59. Before valuation expands, it is wise to take a position in the stock.

Key Picks

Investors interested in the property and casualty insurance industry may look at some better-ranked players like First American Financial Corporation FAF, Mercury General Corporation MCY and ProAssurance Corporation PRA, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for First American’s 2024 and 2025 earnings indicates 6.3% and 31.7% year-over-year growth, respectively. In the past year, shares of FAF have gained 14.7%.

The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 3.8% and 5.3% north, respectively, in the past 30 days.

Mercury General's bottom line outpaced estimates in each of the trailing four quarters, the average surprise being 694.28%. In the past year, shares of MCY have rallied 108.8%.

The Zacks Consensus Estimate for MCY’s 2024 and 2025 earnings implies year-over-year growth of 2,016.67% and 8.66%, respectively.

ProAssurance's bottom line outpaced estimates in three of the trailing four quarters and missed in one, the average surprise being 61.46%. In the past year, shares of PRA have gained 29.5%.

The Zacks Consensus Estimate for PRA’s 2024 and 2025 earnings implies year-over-year growth of 571.4% and 19.3%, respectively.

Zacks Investment Research