First American Financial (NYSE:FAF) versus Arthur J. Gallagher & Co. (NYSE:AJG) Head to Head Analysis

First American Financial (NYSE:FAF) and Arthur J. Gallagher & Co. (NYSE:AJG) are both finance companies, but which is the superior business? We will compare the two businesses based on the strength of their institutional ownership, earnings, risk, profitability, analyst recommendations, dividends and valuation.

Earnings and Valuation

This table compares First American Financial and Arthur J. Gallagher & Co.”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First American Financial	$7.45 billion	0.88	$621.80 million	$7.10	9.00
Arthur J. Gallagher & Co.	$13.94 billion	5.08	$1.49 billion	$6.54	42.27

Arthur J. Gallagher & Co. has higher revenue and earnings than First American Financial. First American Financial is trading at a lower price-to-earnings ratio than Arthur J. Gallagher & Co., indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

89.0% of First American Financial shares are owned by institutional investors. Comparatively, 85.5% of Arthur J. Gallagher & Co. shares are owned by institutional investors. 3.5% of First American Financial shares are owned by company insiders. Comparatively, 1.4% of Arthur J. Gallagher & Co. shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for First American Financial and Arthur J. Gallagher & Co., as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First American Financial	0	1	7	0	2.88
Arthur J. Gallagher & Co.	0	5	15	0	2.75

First American Financial currently has a consensus price target of $81.60, suggesting a potential upside of 27.66%. Arthur J. Gallagher & Co. has a consensus price target of $286.53, suggesting a potential upside of 3.64%. Given First American Financial’s stronger consensus rating and higher possible upside, research analysts plainly believe First American Financial is more favorable than Arthur J. Gallagher & Co..

Dividends

First American Financial pays an annual dividend of $2.44 per share and has a dividend yield of 3.8%. Arthur J. Gallagher & Co. pays an annual dividend of $2.80 per share and has a dividend yield of 1.0%. First American Financial pays out 34.4% of its earnings in the form of a dividend. Arthur J. Gallagher & Co. pays out 42.8% 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. First American Financial has increased its dividend for 15 consecutive years and Arthur J. Gallagher & Co. has increased its dividend for 15 consecutive years. First American Financial is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares First American Financial and Arthur J. Gallagher & Co.’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
First American Financial	9.05%	13.41%	4.17%
Arthur J. Gallagher & Co.	10.39%	13.97%	4.29%

Risk and Volatility

First American Financial has a beta of 1.24, suggesting that its share price is 24% more volatile than the S&P 500. Comparatively, Arthur J. Gallagher & Co. has a beta of 0.55, suggesting that its share price is 45% less volatile than the S&P 500.

About First American Financial

First American Financial Corporation, through its subsidiaries, provides financial services. It operates through Title Insurance and Services, and Home Warranty segments. The Title Insurance and Services segment issues title insurance policies on residential and commercial property, as well as offers related products and services internationally. This segment also provides closing and/or escrow services; products, services, and solutions to mitigate risk or otherwise facilitate real estate transactions; and appraisals and other valuation-related products and services, lien release and document custodial services, warehouse lending services, default-related products and services, document generation services, mortgage loans subservicing, and related products and services, as well as banking, trust, and wealth management services. In addition, it accommodates tax-deferred exchanges of real estate; and maintains, manages, and provides access to title plant data and records. This segment offers its products through a network of direct operations and agents in various states and in the District of Columbia, as well as in Canada, the United Kingdom, Australia, New Zealand, South Korea, and internationally. The Home Warranty segment provides home warranty products, including residential service contracts that cover residential systems, such as heating and air conditioning systems, and various appliances against failures that occur as the result of normal usage during the coverage period. This segment operates in various states and the District of Columbia. The company was founded in 1889 and is headquartered in Santa Ana, California.

About Arthur J. Gallagher & Co.

Arthur J. Gallagher & Co. engages in the provision of insurance brokerage, reinsurance brokerage, consulting, and third-party claims settlement and administration services. It operates through the following segments: Brokerage, Risk Management, and Corporate. The Brokerage segment consists of retail and wholesale insurance brokerage operations. The Risk Management segment provides contract claim settlement and administration services. The Corporate segment manages clean energy and other investments. The company was founded by Arthur J. Gallagher in 1927 and is headquartered in Rolling Meadows, IL.