FIRST AMERICAN FINANCIAL CORPORATION (FAF): what the price requires
At today's price, FIRST AMERICAN FINANCIAL CORPORATION (FAF) is priced for +14.1% earnings growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-19 · Source: https://boothcheck.com/report/FAF
Headline
| Field | Value |
|---|---|
| Ticker | FAF |
| Company | FIRST AMERICAN FINANCIAL CORPORATION |
| Current price | $70.27/sh |
| Composition | Title Insurance and Services 94% / Home Warranty 6% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | fee-financial |
| Implied earnings growth | 14.1% |
| Price-to-earnings | 27.2x |
| Earnings yield | 3.7% |
A hybrid: a fee franchise alongside a sizeable balance sheet, valued here on the fee annuity.
Solve inputs: computed at a 9.8% cost of equity with 4% terminal growth over a 5-year stage, on a 5-year median GAAP earnings base; each 1pp of cost of equity moves the implied earnings growth ~4.4pp.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.19σ |
| cohort percentile (of 49 peers) | 65 |
| sustained it ~5 years at this level | 41% |
Valuation X-Ray
The price is supported by asset-based and earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 0.87x | 3 | justifies |
| Earnings | 0.67x | 2 | justifies |
| Relative | 0.90x | 3 | justifies |
| Growth | 0.84x | 2 | justifies |
Families that justify the price: Asset, Earnings, Relative, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.0%); the inversion above states its own rate.
Per-Model Detail (n=10)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | — | — | no | — |
| Bank Fair Value (P/TBV) | — | $59.10 | 1.19x | yes | TBVPS $34.62 × 1.71x (ROE (TTM) 12.3% / CoE 9.3%, g=5.0% (sustainable: 65% retention × ROE, 5% cap; not the terminal-growth assumption)) |
| Relative Valuation | Relative | $63.91 | 1.10x | yes | P/E 11x (static sector reference · 2026-04), scenarios: 8.9x / 11.0x / 13.1x (bear / base = reference held flat / bull), EV/EBITDA 15.75x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | $77.17 | 0.91x | yes | Stage 1: 20% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $70.40 | 1.00x | yes | BV/sh $53.14, ROE (TTM) 12.3%, ke 9.3% |
| Two-Stage Excess Return | Asset | $80.50 | 0.87x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $90.42 | 0.78x | yes | Rev $7.7B, growth 23% (input: historical growth; tapered), Terminal P/S: 0.8x / 0.9x / 1.1x (bear / base = today's held flat / bull, cap 12x) |
| Peter Lynch Fair Value | Relative | $78.00 | 0.90x | yes | EPS $6.50, growth 1% (input: historical EPS growth), PEG=7.53 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | — | — | no | — |
| Graham Number | Asset | $88.16 | 0.80x | yes | √(22.5 × EPS $6.50 × BVPS $53.14) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | — | — | no | — |
| FCF Yield | Earnings | — | — | no | — |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $209.73 | 0.34x | yes | EPS $6.50 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | — | — | no | — |
| PEG Fair Value | Relative | $243.75 | 0.29x | yes | EPS $6.50 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $70.27 | 1.00x | yes | EPS $6.50 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Share count CAGR (buyback) | -1.7% |
Custody and consolidated-fund balance sheet: deposits, client cash, and fund-level debt are not corporate leverage, and operating cash flow follows client flows. Net-debt, coverage, and cash-burn lenses are suppressed as misleading; share-count CAGR is kept. The fee-earnings read above is the valuation basis.
Bullet Takeaways
First American is valued as a fee-financial business, worth the title-insurance fee earnings it throws off; at $68.67 it trades at about 27x earnings (a 3.8% earnings yield), implying roughly 13.9% earnings growth a year, which the inversion reads as within range.
Unusually for a cyclical, all four valuation families (asset, earnings-power, relative-multiple, growth-DCF) support the price, with two-stage DDM near $77 and the excess-return models near $70 to $80; the reverse-DCF fee-earnings band of about $60 to $87 places the price in the lower-middle.
The strength is the commercial title business, with full-year 2025 EPS of $6.00, revenue up 22% to $7.5 billion, commercial revenue up 35%, and a shrinking share count; the risk is that the implied earnings growth depends on a residential recovery that high mortgage rates keep deferring.
Bull Case
Here is the counterintuitive part. First American Financial is a title insurer, a business everyone files under "housing-market cyclical," yet the valuation here reads it as a value-and-asset-supported name rather than a growth bet. All four method families (asset-based, earnings-power, relative-multiple, and growth-DCF) support the current price, which is unusual; most names lean on one or two families and get flagged expensive by the rest. When the asset floor, the earnings floor, the peer multiple, and the forward-growth case all line up under the price, the market is not paying a premium for a story. It is paying for a franchise it can see.
The franchise is the title plant and the agent network. First American's filing describes conducting title insurance and closing business through a network of direct operations, with premiums regulated jurisdiction by jurisdiction and priced with reference to the policy amount (accession 0000950170-25-024488). That is a fee annuity tied to real-estate transactions, and the model values it as such: this is read as a fee-financial business worth the earnings it throws off, at about 27x earnings, a 3.8% earnings yield, implying roughly 13.9% earnings growth a year. The inversion places that bar comfortably within range, with the company's own history sitting near the middle of the distribution.
The recent numbers are the kind that make a cyclical look like a compounder. Full-year 2025 diluted EPS was $6.00 on total revenue of $7.5 billion, up 22%, with commercial revenues up 35% and a title-segment pretax margin of 14.9%. Commercial is the higher-value, less rate-sensitive part of the title business, and its 35% growth is doing real work while residential stays soft. With a shrinking share count (share-count CAGR around minus 1.7%) and capital returned to holders, the per-share math compounds even before a housing recovery. If refinance and home-sale volumes thaw as rates stabilize, the residential side is upside on top of a commercial engine that is already running.
Bear Case
The structural truth a First American holder would rather not face is that title insurance is leveraged to the one variable nobody controls: the level of real-estate activity, which is set by mortgage rates. The filing is explicit that premiums are charged with reference to the policy amount and are subject to regulation in most jurisdictions (accession 0000950170-25-024488), so revenue rises and falls with both transaction volume and home prices. When rates stay high and home sales stall, premium income compresses on both axes at once. The 2025 strength leaned on commercial (up 35%) while residential stayed weak; if commercial cools and residential does not recover, the earnings base the price capitalizes gets thinner.
The valuation, supportive as it is across families, is not a screaming bargain. The price implies about 13.9% earnings growth a year at 27x earnings, and the reverse-DCF fee-earnings band runs from roughly $60 (low) to $87 (base and high). At $68.67 (June 27, 2026) the stock sits in the lower-middle of that band, so the upside the model sees is contingent on the earnings growth materializing, not already banked. The earnings yield of 3.8% is not a high cash return for a business this cyclical; an investor is being paid a modest yield to underwrite the housing cycle, and the bear's view is that the cycle risk is underpriced when the stock is valued like a stable compounder.
Two cautions sit underneath. First, this is a hybrid: a fee franchise bolted to a sizeable insurance balance sheet, so the usual net-debt and coverage lenses are suppressed as misleading, and an investor has to trust the fee-earnings read rather than a clean leverage check. Second, the earnings base is a single-year figure in the inversion, which makes the implied-growth solve sensitive to one good or bad year; a weak housing print could swing the picture more than the smoothness of the valuation suggests. The honest bear case is not that the franchise is broken; it is that a rate-and-volume-driven cyclical is being asked to grow earnings at a high-single-to-low-double-digit pace through an environment that has not yet cooperated.
Valuation
First American is valued as a fee-financial business, which is the right frame: a title insurer is worth the fee earnings its franchise throws off, not its book value or its insurance float treated as corporate leverage. On that basis the stock trades at about 27x earnings, a 3.8% earnings yield, which inverts to roughly 13.9% earnings growth a year for five years at a 9.9% cost of equity. The reverse-DCF fee-earnings band runs from about $60 (low) to $87 (base and high), placing the current $68.67 price in the lower-middle of the range.
What stands out is the agreement across methods. The asset, earnings-power, relative-multiple, and growth-DCF families all support the price, which is why this reads as value-and-asset-supported rather than a one-family growth bet. Most of the cluster sits at or above the price, and none of the families flag it as sharply expensive. For a cyclical, that breadth of support is the unusual and bullish feature.
The honest read: this is a reasonably-priced, asset-backed cyclical with a real fee annuity, where the bet is that earnings can compound at a low-double-digit rate through the housing cycle. The strength is the commercial title business (revenue up 35% in 2025) and a shrinking share count; the risk is that the implied growth is contingent on a residential recovery that high rates keep deferring. One framing caution: the inversion runs on a single-year earnings base, so the growth solve is sensitive to one strong or weak year, and the cleaner way to weigh it is against the company's full-year 2025 EPS of $6.00 and the segment margins, rather than treating the implied 13.9% as a measured forecast.
Catalysts
The key recent catalyst was the fourth-quarter and full-year 2025 report, released February 11, 2026. First American posted full-year diluted EPS of $6.00 on total revenue of $7.5 billion, up 22%, with commercial revenues up 35% and a Title Insurance and Services pretax margin of 14.9%. The quarter showed strong commercial growth and record margins while residential demand stayed weak (First American 8-K, Simply Wall St).
The forward setup hinges on the housing and rate backdrop. Management's 2026 outlook is positive for commercial and refinance activity, with continued investment in AI and ongoing capital returns to shareholders. Commercial title is the higher-value, less rate-sensitive part of the business and has been carrying results; a stabilization in mortgage rates would add residential volume on top, while persistently high rates are the primary risk that could delay home sales and compress premiums (ad-hoc-news, Simply Wall St).
The catalysts to watch are the next quarterly prints and the rate path. A continuation of double-digit commercial growth, plus any thaw in residential transactions as rates settle, would validate the implied earnings-growth bar; a renewed leg higher in rates, or a cooling in commercial real-estate activity, would be the clearest near-term threat to the thesis. Capital returns (buybacks against a shrinking share count) provide a steadier per-share tailwind in the meantime (tickeron, ad-hoc-news).
Peer Cohorts (Per Segment, With Filing Citations)
Title Insurance and Services / Home Warranty (reported)
- FNF (FIDELITY NATIONAL FINANCIAL, INC.)
- FY2025 10-K: Title insurance premiums are due in full at the closing of the real estate transaction. The amount of the insured risk or "face amount" of insurance under a title insurance policy is generally equal to either the amount of the loan secured by the property or the purchase price of the property. The title insurer is…
- FY2025 10-K: …requirements, frequent new product and service introductions, and evolving industry standards. We believe that our future success depends in part on our ability to anticipate industry changes and offer products and services that meet evolving industry standards. In connection with our Title segment service offerings,…
- STC (STEWART INFORMATION SERVICES CORP)
- FY2025 10-K: …of Operations discussion under Item 7 - MD&A for the breakdown of title revenues by major geographic location. Regulations . Title insurance companies are subject to comprehensive state regulations covering premium rates, agency licensing, policy forms, trade practices, reserve requirements, investments and the…
- FY2025 10-K: …exchange rates, supply chains, inventory and weather. In periods of low interest rates, loan refinancing transactions are also an important contributor to revenues. These factors may override the seasonal nature of the title business. Generally, our first quarter is the least active and our second and third quarters…
- ORI (OLD REPUBLIC INTERNATIONAL CORP)
- FY2025 10-K: Because independent title agents issue a significant portion of the Title Insurance segment's policies and operate with substantial independence from the business, the independent operations of these title agents could adversely affect the financial condition and profitability of this segment. The Title Insurance…
- FY2025 10-K: 7.0 % 97.1 % __________ (a) Title loss, expense, and combined ratios are calculated on the basis of combined net premiums and fees earned. Title Insurance experienced premium growth compared to last year, however, an elevated combined ratio reflects difficult market conditions, lower favorable reserve development, a…
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.