Based in Jacksonville, Florida, tFidelity National Financial, Inc. (FNF), offers various insurance products, including fiduciary business, fiduciary sales guarantees, retrocessions and home warranty insurance. The settlement services provider’s stock has fallen 17.1% in the past month and 20.6% since the start of the year, mainly on bearish investor sentiment about the housing market amid growing concerns about the recession.
While FNF’s direct stock premiums grew 21% year-over-year to $1 billion, the company’s refinancing orders fell 39% daily from the fourth quarter of 2020 Additionally, earlier this month, the Federal Reserve Bank of Dallas issued a warning about the housing market showing signs of “a brewing bubble.”
While continued strong asset growth, trading revenue momentum and record performance in the securities business have helped FNF deliver attractive returns to its shareholders, lower refinancing volumes and its high operating expenses could hamper growth. of its market share. In addition, its weak profitability could cause its shares to decline further.
Here’s what could influence FNF’s performance in the coming months:
Unstable real estate market
As the housing market continues to be red hot amid soaring prices and rising mortgage rates, worries surrounding a potential crash could lead to negative sentiment among investors. According to Redfin, the rate of sellers lowering their asking prices has grown rapidly since last year. Cooling real estate prices could, in turn, negatively affect mortgage insurance companies.
In addition, mounting inflationary pressure and potential Fed action could significantly raise mortgage interest rates, reducing the number of borrowers expected to refinance. This could hurt FNF’s refinancing volumes.
Mixed growth potential
Analysts expect FNF’s revenue to grow 20.3% next quarter (ending June 2022) and 2.7% next year. But its revenue is expected to decline 18% year-over-year to $12.83 billion in its fiscal year 2022. The company’s EPS is expected to decline 22.3% year-over-year. the other at $1.6 next quarter and 22.8% year over year to $6.1. in the current year. However, its EPS is expected to increase by 4.3% in fiscal 2023.
Mixed finance
FNF’s total sales from the F&G business increased 50% year-over-year to $2.2 billion in the fourth quarter ended December 31, 2021. Its retail sales were 1 $.4 billion, a growth of 5% over the prior year period. However, the title insurance provider’s net profit under F&G was $121 million for the quarter, down 11.7% year-over-year. Additionally, FNF’s total open orders decreased 22.1% sequentially.
Low profitability
Its 10.5% leveraged free cash flow margin over the last 12 months is 53.9% below the industry average of 22.7%. FNF’s net profit margin and EBIT margin of 15.5% and 20.5%, respectively, are 48.7% and 24.1% below their industry averages. Moreover, its 59.4% Gross margin is 11.4% lower than the industry average of 67.1%.
POWR ratings reflect uncertainty
FNF has an overall rating of C, which translates to Neutral in our POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight distinct categories. FNF has a C rating for quality. The stock’s low profitability is in line with this rating.
Additionally, the company has a Momentum rating of C, which is consistent with its price returns over the past month.
And in terms of stability rating, FNF has a C. This justifies the stock’s relatively high beta of 1.36.
In addition to the ratings I have highlighted, there are additional FNF ratings for Value, Sentiment, and Growth. here. FNF is ranked #4 out of 6 stocks in the C rating Insurance – Title industry.
Conclusion
The record performance of FNF’s title insurance business and strong asset growth in its F&G business segment drove the leading title insurance company’s growth and premium income. However, an expected contraction in refinancing volumes and growing concerns over the development of a housing bubble have added uncertainties to its outlook. Therefore, we believe investors should wait for the situation to stabilize before investing in the stock.
How does Fidelity National Financial (FNF) compare to its peers?
Although FNF has an overall C rating in our proprietary rating system, one might consider taking a look at its industry counterpart, Investors Title Company (ITIC), having an A (Strong Buy) rating.
FNF shares were flat in premarket trading on Monday. Year-to-date, the FNF is down -21.03%, compared to a -10.02% rise in the benchmark S&P 500 over the same period.
About the Author: Imon Ghosh
Imon is a financial analyst and journalist with a passion for financial research and writing. She started her career at Kantar IMRB, a leading market research and consumer advisory organization. After…
