First American Financial Vs. RenaissanceRe: Which Is Better?
Zacks Investment Research | Jun 28, 2018 11:56PM ET
The property and casualty insurance industry is presently well placed, given a not so active catastrophe environment likely to cushion underwriting results. Measuring insurers’ profitability, underwriting results should gain traction from this favorable scenario. The Property and Casualty Insurance industry is ranked at #84, positioning itself in the top 33% of the industry has grown 7.4% in a year, it underperformed the S&P 500 index’s gain of 14.2%. The industry is currently undervalued compared with the elite S&P 500 index. Given the growth prospects and undervaluation, this space offers attractive investment opportunities.
Here we focus on two property and casualty insurers, namely First American Financial Corporation (NYSE:FAF) and RenaissanceRe Holdings Ltd. (NYSE:RNR) .
While the former with a market capitalization of $5.7 billion provides financial services, largely title insurance, the latter provides reinsurance and insurance coverages and has a market cap of $4.8 billion.
Two better-ranked stocks from the same industry are Alleghany Corporation (NYSE:Y) and HCI Group, Inc. (NYSE:HCI) , both sporting a Zacks Rank #1 (Strong Buy). You can see .
Zacks Rank
First American Financial carries a Zacks Rank #2 (Buy) while RenaissanceRe has a Zacks Rank #3 (Hold). Thus, First American Financial Group emerges a clear winner in this round.
Price Performance
First American Financial has outperformed both RenaissanceRe and the industry in a year. While shares of First American Financial have rallied 14.8%, the RenaissanceRe stock has declined 13.7%. First American Financial wins this round too.
Valuation
The price to book value metric is the best multiple used for valuing insurers. Compared with the Property and Casualty Industry’s P/B ratio of 1.32, First American Financial is overvalued with a reading of 1.6. RenaissanceRe with a reading of 1.2 is cheaper and thus, this round understandably goes to RenaissanceRe as its shares are underpriced.
Get The News You Want
Debt-to-Equity
Both First American Financial and RenaissanceRe have lower debt-to-equity ratio compared with the industry average of 28.4. First American Financial with a reading of 21.1 betters RenaissanceRe’s leverage ratio of 22.3. Therefore, First American Financial has a visible edge over RenaissanceRe here.
Return on Equity
First American Financial with a return on equity of 14.3% exceeded the industry average of 5.3% as well as RenaissanceRe’s reading of a negative 5.8%. Return on equity is a profitability measure, identifying how the company is effectively utilizing its shareholders’ money. Hence, First American Financial leads this round.
Dividend Yield
First American Financial’s dividend yields 2.96%, outperforming the industry average of 0.52% and RenaissanceRe’s yield of 1.1%.
First American Financial wins this round hands down.
Earnings Surprise History
As far as the companies’ surprise history is concerned, First American Financial’s earnings surpassed the Zacks Consensus Estimate in the last four quarters with an average beat of 8.33%. While RenaissanceRe outpaced the expectations in three of the last four quarters with an average four-quarter positive surprise of 17.66%.
This round is noticeably gripped by First American Financial.
Earnings Estimate Revisions and Growth Projections
RenaissanceRe’s 2018 earnings estimates have been moved 5.5% north in the last 60 days. Whereas, there was no earnings momentum for First American Financial.
For RenaissanceRe, the consensus mark for current-year earnings per share is estimated to skyrocket 228% while the same for First American Financial translates into a 59.3% year-over-year increase.
The expected long-term earnings growth rate for RenaissanceRe is pegged at 9.5% while for First American Financial, stands at 13%.
Here, RenaissanceRe gains advantage over First American Financial.
To Conclude
While First American Financial scored higher across most categories RenaissanceRe bettered in terms of valuation and earnings estimate revisions plus growth projections. First American Financial is thus a more exciting and viable investment option than RenaissanceRe.
Wall Street’s Next Amazon (NASDAQ:AMZN)
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.