First American Financial (NYSE: FAF) and State Auto Financial (NASDAQ:STFC) are both finance companies, but which is the better business? We will compare the two companies based on the strength of their risk, institutional ownership, valuation, dividends, analyst recommendations, profitability and earnings.
Insider and Institutional Ownership
84.1% of First American Financial shares are owned by institutional investors. Comparatively, 33.1% of State Auto Financial shares are owned by institutional investors. 3.1% of First American Financial shares are owned by insiders. Comparatively, 1.5% of State Auto Financial shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.
First American Financial has a beta of 0.79, meaning that its share price is 21% less volatile than the S&P 500. Comparatively, State Auto Financial has a beta of 0.85, meaning that its share price is 15% less volatile than the S&P 500.
This is a breakdown of current recommendations and price targets for First American Financial and State Auto Financial, as reported by MarketBeat.com.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|First American Financial||0||1||1||0||2.50|
|State Auto Financial||0||1||0||0||2.00|
First American Financial currently has a consensus price target of $49.50, suggesting a potential downside of 12.56%. State Auto Financial has a consensus price target of $26.00, suggesting a potential downside of 9.03%. Given State Auto Financial’s higher probable upside, analysts clearly believe State Auto Financial is more favorable than First American Financial.
Earnings & Valuation
This table compares First American Financial and State Auto Financial’s revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||Net Income||Earnings Per Share||Price/Earnings Ratio|
|First American Financial||$5.58 billion||1.13||$342.99 million||$2.53||22.38|
|State Auto Financial||$1.41 billion||0.86||$21.00 million||$0.65||43.97|
First American Financial has higher revenue and earnings than State Auto Financial. First American Financial is trading at a lower price-to-earnings ratio than State Auto Financial, indicating that it is currently the more affordable of the two stocks.
First American Financial pays an annual dividend of $1.52 per share and has a dividend yield of 2.7%. State Auto Financial pays an annual dividend of $0.40 per share and has a dividend yield of 1.4%. First American Financial pays out 60.1% of its earnings in the form of a dividend. State Auto Financial pays out 61.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. State Auto Financial has increased its dividend for 6 consecutive years. First American Financial is clearly the better dividend stock, given its higher yield and lower payout ratio.
This table compares First American Financial and State Auto Financial’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|First American Financial||4.88%||14.30%||4.95%|
|State Auto Financial||1.94%||-1.53%||-0.46%|
First American Financial beats State Auto Financial on 13 of the 17 factors compared between the two stocks.
First American Financial Company Profile
First American Financial Corporation, through its subsidiaries, is engaged in the business of providing financial services. The Company operates through the title insurance and services segment, and specialty insurance segment. The title insurance and services segment provides title insurance, closing and/or escrow services and similar or related services domestically and internationally in connection with residential and commercial real estate transactions. The title insurance and services segment also provides products, services and solutions involving the use of property related data, including data derived from its database, which are designed to manage risk or otherwise facilitate real estate transactions. The specialty insurance segment issues property and casualty insurance policies and sells home warranty products to residential homeowners and renters for liability losses and typical hazards, such as fire, theft, vandalism and other types of property damage.
State Auto Financial Company Profile
State Auto Financial Corporation is a property and casualty insurance holding company. The Company is engaged in writing personal, business and specialty insurance. Its segments include Personal Insurance Segment, Commercial Insurance Segment and Specialty Insurance Segment. Its Personal Insurance Segment include personal auto, homeowners and other personal; Commercial Insurance Segment include commercial auto, small commercial package, middle market commercial, workers’ compensation and other commercial, and Specialty Insurance Segment include Excess & Surplus (E&S) property, E&S casualty and programs. State Auto Financial’s subsidiaries include State Auto Property & Casualty Insurance Company (State Auto P&C), Milbank Insurance Company (Milbank) and State Auto Insurance Company of Ohio (SA Ohio), each of which is a property and casualty insurance company, and Stateco Financial Services, Inc., (Stateco), which provides investment management services to affiliated insurance companies.
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