Analyzing First American Financial (NYSE:FAF) and Travelers Companies (NYSE:TRV)

First American Financial (NYSE:FAF) and Travelers Companies (NYSE:TRV) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their analyst recommendations, earnings, risk, valuation, profitability, institutional ownership and dividends.

Analyst Recommendations

This is a summary of current ratings for First American Financial and Travelers Companies, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First American Financial	1	1	3	0	2.40
Travelers Companies	1	10	6	2	2.47

First American Financial currently has a consensus target price of $76.00, indicating a potential upside of 15.02%. Travelers Companies has a consensus target price of $292.73, indicating a potential downside of 0.58%. Given First American Financial’s higher possible upside, equities analysts clearly believe First American Financial is more favorable than Travelers Companies.

Volatility and Risk

First American Financial has a beta of 1.24, meaning that its stock price is 24% more volatile than the S&P 500. Comparatively, Travelers Companies has a beta of 0.55, meaning that its stock price is 45% less volatile than the S&P 500.

Valuation and Earnings

This table compares First American Financial and Travelers Companies”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First American Financial	$7.08 billion	0.95	$131.10 million	$4.65	14.21
Travelers Companies	$48.41 billion	1.36	$5.00 billion	$25.43	11.58

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

Dividends

First American Financial pays an annual dividend of $2.20 per share and has a dividend yield of 3.3%. Travelers Companies pays an annual dividend of $4.40 per share and has a dividend yield of 1.5%. First American Financial pays out 47.3% of its earnings in the form of a dividend. Travelers Companies pays out 17.3% 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 raised its dividend for 15 consecutive years and Travelers Companies has raised its dividend for 21 consecutive years.

Profitability

This table compares First American Financial and Travelers Companies’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
First American Financial	6.80%	11.01%	3.50%
Travelers Companies	12.14%	20.28%	4.31%

Institutional and Insider Ownership

89.1% of First American Financial shares are held by institutional investors. Comparatively, 82.4% of Travelers Companies shares are held by institutional investors. 3.7% of First American Financial shares are held by company insiders. Comparatively, 1.5% of Travelers Companies shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Summary

Travelers Companies beats First American Financial on 12 of the 18 factors compared between the two stocks.

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 Travelers Companies

The Travelers Companies, Inc., through its subsidiaries, provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United States and internationally. The company operates through three segments: Business Insurance, Bond & Specialty Insurance, and Personal Insurance. The Business Insurance segment offers workers’ compensation, commercial automobile and property, general liability, commercial multi-peril, employers’ liability, public and product liability, professional indemnity, marine, aviation, onshore and offshore energy, construction, terrorism, personal accident, and kidnap and ransom insurance products. This segment operates through select accounts, which serve small businesses; commercial accounts that serve mid-sized businesses; national accounts, which serve large companies; and national property and other that serve large and mid-sized customers, commercial trucking industry, and agricultural businesses, as well as markets and distributes its products through brokers, wholesale agents, and program managers. The Bond & Specialty Insurance segment provides surety, fidelity, management and professional liability, and other property and casualty coverages and related risk management services through independent agencies and brokers. The Personal Insurance segment offers property and casualty insurance covering personal risks, primarily automobile and homeowners’ insurance to individuals through independent agencies and brokers. The Travelers Companies, Inc. was founded in 1853 and is based in New York, New York.