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Shares of Fidelity National Financial FNF have gained 14.5% year to date, underperforming the industry’s increase of 28.1% and the Zacks S&P 500 composite’s increase of 18% in the said time frame.
The bottom line of FNF has continually dropped from 2021 to 2023, declining 77.4%. Revenues declined 24.9% from 2021 to 2023. Earnings per share (EPS) missed the consensus estimate in the last two reported quarters of 2024.
Fidelity National’s transaction volumes were affected as U.S. home sales suffered due to higher mortgage rates. FNF’s refinance orders opened per day declined 1% year over year in the second quarter of 2024. However, the average rate on the 30-year fixed-rate mortgage dropped to 6.47% as of Aug. 8 from 6.73% a week ago, a positive development for the housing market.
Also, an interest rate cut is likely in the September FOMC, with chances of more later this year. FNF stated that every 25-basis point decrease in Fed funds is expected to result in an approximate $15 million annualized decline in its interest and investment income.
Notes payable increased 7.4% as of June 30, 2024. Its leverage of 52.3 deteriorated 182 basis points. Leverage in the trailing 12-month compared unfavorably with the industry average of 1.4. Times interest earned too compared unfavorably with the industry average.
FNF Lags Industry and S&P
Image Source: Zacks Investment Research
Factors Favoring FNF Stock
Fidelity National has a market-leading position in residential purchase, refinance and commercial markets. This, in turn, provides a scale advantage to the title insurer. Real estate-related businesses complement its core title business. Its scale and volume fuel revenues and lower costs provide a competitive advantage. The title insurer’s strategic move to buy F&G Annuities & Life, a leading provider of annuity and life insurance concentrated in the middle-income market with a diversified growth strategy, shields it from the volatility integral to the core title insurance business.
Solid retail annuity sales and F&G’s presence in institutional markets benefit assets under management. F&G invests in a high-quality and well-diversified portfolio and its average assets under management growth drives earnings.
In tandem with accelerated digitalization taking place in the industry, Fidelity National too is investing in technology to widen its market-leading position.
Banking on operational expertise, FNF has a solid capital position that supports wealth distribution, mergers and acquisitions, organic growth initiatives and debt payments.
It carries a VGM Score of A. VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum.
Fidelity National’s Favorable Return on Equity
FNF’s return on equity in the trailing 12 months was 9.5%, better than the industry average of 6.2%, reflecting efficiency in utilizing shareholders’ funds.
FNF’s Growth Projection
The Zacks Consensus Estimate for FNF’s 2024 earnings is pegged at $4.58, indicating a 29% increase from the year-ago reported figure on 9.9% higher revenues of $12.9 billion. The consensus estimate for 2025 earnings is pegged at $5.63, indicating a 23.1% increase year over year on 9.2% higher revenues of $14.1 billion. The company has a Growth Score of B.
FNF’s Dividend History Impressive
FNF’s distribution of wealth to shareholders via dividend hikes is impressive. Fidelity National has increased dividends at a 10-year CAGR of 9.7%. The dividend yield is 3.3%, better than the industry average of 0.3%.
FNF’s dividend yield betters other industry players like Stewart Information Services STC and Old Republic International ORI.
To Conclude
FNF is set to grow on its market-leading position, higher direct premiums, agency premiums, strong origination demand and effective capital deployment. Being the nation’s largest title insurance company, Fidelity National should benefit from solid long-term fundamentals for U.S. residential and commercial real estate markets, given its largest & deepest real estate data networks. It is, therefore, wise to hold on to this Zacks Rank #3 (Hold) stock.
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