– By GF value
The stock of Fidelity National Financial (NYSE:FNF, 30-year Financials) would be slightly undervalued, according to the calculation of GuruFocus Value. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should trade. It is calculated based on the historical multiples at which the stock has traded, past business growth and analysts’ estimates of the company’s future performance. If a stock’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly lower than the GF value line, its future return is likely to be higher. At its current price of $40.83 per share and market capitalization of $11.9 billion, Fidelity National Financial’s stock gives every indication that it is slightly undervalued. The GF value for Fidelity National Financial is shown in the table below.
Since Fidelity National Financial is relatively undervalued, its stock’s long-term return is likely to outpace its business growth, which has averaged 11% over the past three years and is expected to grow by 1.99% per year for the next three to five years. .
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Since investing in companies with weak financial strength can result in a permanent loss of capital, investors should carefully consider a company’s financial strength before deciding whether or not to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the financial strength of the business. Fidelity National Financial has a cash-to-debt ratio of 0.80, which is worse than 70% of companies in the insurance industry. Based on this, GuruFocus ranks Fidelity National Financial’s financial strength at 5 out of 10, suggesting a fair balance sheet. Here is Fidelity National Financial’s debt and cash flow over the past few years:
Companies that have been consistently profitable over the long term offer less risk for investors looking to buy stocks. Higher profit margins generally dictate a better investment compared to a company with lower profit margins. Fidelity National Financial has been profitable 10 of the last 10 years. Over the past twelve months, the company has posted revenue of $10.8 billion and earnings of $4.91 per share. Its operating margin is 0.00%, which ranks it in the bottom 10% of companies in the insurance industry. Overall, Fidelity National Financial’s profitability is ranked 6 out of 10, indicating fair profitability. Here are Fidelity National Financial’s revenues and net income for the past few years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely tied to a company’s long-term stock market performance. A faster growing company creates more value for shareholders, especially if the growth is profitable. Fidelity National Financial’s 3-year average annual revenue growth is 11%, which ranks better than 73% of companies in the insurance industry. The average 3-year EBITDA growth rate is 17.5%, which ranks better than 76% of companies in the insurance industry.
Another method to determine a company’s profitability is to compare its return on investment to the weighted average cost of capital. Return on Invested Capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies that the company is creating value for the shareholders. For the past 12 months, Fidelity National Financial’s return on invested capital is 4.96 and its cost of capital is 9.33. Fidelity National Financial’s historical comparison of ROIC and WACC is shown below:
In closing, Fidelity National Financial (NYSE: FNF, 30yr Financials) stock appears to be slightly undervalued. The company’s financial situation is correct and its profitability is correct. Its growth ranks better than 76% of companies in the insurance industry. To learn more about Fidelity National Financial stock, you can view its 30-year financial statements here.
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This article first appeared on GuruFocus.