- Buys
- 0 of 4
- Three are needed, so First American stays out of the basket.
- Free cash flow yield
- 11.57%
- Trailing $805.8M against a $6.96B market cap.
- Five-year earnings multiple
- 14.3x
- The same market cap over average net income of $486.5M since 2021.
- Third-quarter net income
- -6.6%
- On revenue up 5.3%, and peers saw the same squeeze.
Durable quality, long horizonA sound toll on property transfers, priced fairly once the cycle is averaged.
Deep value, margin of safetyTen times normalized earnings is worth far less than the market cap.
Macro and reflexivityA cheap option on mortgage rates that has not struck yet.
Growth investingStrong cash, no secular growth, and the volume engine is stalling.
Session of November 6, 2026. All four seats voted. Our document reader was down, so the October 21 release, the annual report text and the proxy went unread; commercial title and investment income figures rest on press coverage, and no ownership table is shown. This is the first First American review.
Bottom line
First American looks cheap on the year it just had. Trailing free cash flow is 11.57% of the market cap, more than twice the 4.90% 10-year Treasury yield. On five years of earnings it looks ordinary: the market cap is 14.3 times average net income since 2021.
Our arithmetic says the price already assumes free cash flow shrinks 3.7% to 7.3% a year for a decade. Three seats expect year-three cash flow inside or above that path, and still nobody voted Buy. The split is over which year is normal, and whether the profit squeeze that hit three title insurers at once in the September quarter is cost or claims.
The first dated test is the fiscal 2026 10-K, due by March 1, 2027.
The business in 60 seconds
First American sells title insurance and closing services on US property deals. Title Insurance and Services produced $1.97B of revenue in the quarter to September 30, 2026, 95% of the total and up 7.5% (10-Q, filed October 23, 2026). Home Warranty added $114.7M, flat on the year.
Premiums are paid at closing and claims surface years later, so the company invests a float, which is why liabilities run to $12.57B against $5.39B of equity. Goodwill takes $1.82B of that equity, leaving tangible book of $3.49B.
Because the March 30, 2026 proxy went unread, any holder above 10% is unknown to us. The proxy pay table lists two principal executive officers in fiscal 2025, so the chief executive changed that year.
| Fiscal year | Revenue | Net income | Free cash flow | Diluted shares |
|---|---|---|---|---|
| 2021 | $9.2B | $1.2B | $1.1B | 111.4M |
| 2022 | $7.6B | $263.0M | $517.8M | 107.3M |
| 2023 | $6.0B | $216.8M | $90.9M | 104.6M |
| 2024 | $6.1B | $131.1M | $679.2M | 104.3M |
| 2025 | $7.5B | $621.8M | $762.5M | 103.7M |
Annual reports via SEC EDGAR. Net income replaces operating income, which the filings leave untagged. We could not read the cause of the 2024 figure today.
What changed
- Revenue grew and profit shrank. September-quarter revenue was $2.08B against $1.98B, and net income $177.0M against $189.6M (10-Q, filed October 23, 2026).
- Commercial carried the quarter. Press reports of the October 21 release put commercial title revenue up 21% and title investment income at $169M. We did not confirm either in the release.
- Rivals were squeezed the same way. Stewart's title revenue rose 3.7% while its net income fell 31.5% (10-Q, filed November 4, 2026). Old Republic's revenue rose 5.2% and net income fell 13.0% (10-Q, filed October 30, 2026).
- No outlook in the filing. The release carries no forward figures we could read. One outlet reported management remarks of flat 2027 revenue and falling October orders, and three seats leaned on that single report.
- Long rates moved, mortgage rates had not. The 10-year yield fell 41 basis points in 30 days (FRED, November 4, 2026). Our last mortgage print was 7.3%, an almost three-year high (Bloomberg, September 30, 2026).
The bull case on First American
- The yield is real cash. Free cash flow was $762.5M in fiscal 2025 and $805.8M over the trailing year, after capital spending.
- It is gaining on Stewart. Title revenue grew 7.5% in the quarter against 3.7% at its smaller rival.
- Distributions survived the trough. Dividends stayed between $213.0M and $223.0M every year from 2021 to 2025, including 2023, when free cash flow was $90.9M.
- The share count only falls. Diluted shares went from 111.4M to 103.7M in four years, with stock pay at 0.9% of revenue.
- Debt is not the risk. Of about $1.56B of filed principal, $7.8M falls due inside four years.
FAF is a cheap, roughly net-cash option on the one variable that mean-reverts, mortgage rates
Investor C, on why the price looks like capitulation
The market treats the company purely as an interest rate hostage.
Investor D, on float income the price may ignore
The bear case on First American
- The trailing year beats the average year. Trailing net income of $732.5M compares with a five-year mean of $486.5M.
- The squeeze came before volumes fell. Revenue up 5.3% with profit down 6.6% is compression, not operating leverage.
- The record is cyclical. Free cash flow fell 7.9% a year over four fiscal years, from a 2021 peak.
- The book is softer than 1.3x suggests. Goodwill is a third of equity, and the market cap is about twice tangible book.
- A hole in the history. Nobody on the committee could see what caused 2024's $131.1M, or whether it can repeat.
This is not a compounding machine. It is a good franchise tied to a volatile volume driver.
Investor A, Watch 6
A common margin factor I cannot identify, possibly claims, is the single scariest item on the page.
Investor C, on the shared September-quarter decline
Where the committee splits
Three Watches and an Avoid. The reasoning split more than the votes.
Is fiscal 2025 a normal year for First American, or a good one?
| Position | Seats | The figure it rests on |
|---|---|---|
| Average the cycle | A, B | Five-year mean net income $486.5M, 10-K rows |
| Trailing cash is the base | C, D | Trailing free cash flow $805.8M, SEC EDGAR |
What settles it. Fiscal 2026 net income and free cash flow in the 10-K due by March 1, 2027. Investor B rejects its valuation below $400M of normalized earnings.
From the chair, to Investor A. Title revenue grew 7.5% against 3.7% at Stewart. If share is holding, why is a mean that includes a 2021 refinance peak and an unexplained 2024 a better base than fiscal 2025?
Was the September-quarter squeeze cost or claims?
| Position | Seats | The figure it rests on |
|---|---|---|
| A shared factor, possibly claims | C | Net income -6.6%, -13.0%, -31.5% at First American, Old Republic, Stewart, 10-Qs |
| Ordinary compression | A, D | Net income -6.6% on revenue +5.3%, 10-Q |
What settles it. Net margin in the fiscal 2026 10-K. Investor C breaks below 7%, against 9.1% now.
From the chair, to Investor C. You call the shared decline the scariest item on the page, yet your base case holds the 9.1% net margin flat for three years. Which filed line would tell you it is claims rather than cost?
What would actually move a verdict?
| Position | Seats | The figure it rests on |
|---|---|---|
| Mortgage rates | C, D | 10-year 4.90%, FRED; mortgage rate 7.3%, Bloomberg |
| Rules on title insurance | A | Title at 95% of revenue, 10-Q |
| A recovery in verified earnings | B | Five-year net income range, 10-K rows |
What settles it. Purchase order counts in the fourth-quarter release, and any federal or state move on title waivers.
From the chair, to Investor B. Short of the fiscal 2028 10-K, which earlier filing would you accept as evidence of the recovery your critical environment needs?
From the chair, to Investor D. Your base case leans on a flat 2027 outlook the sheet marks unverified. What is your base case without it?
| Investor | Verdict | What breaks its thesis |
|---|---|---|
| A | Watch 6 | Title growth trailing a direct rival's by over 5 points in both early 2027 quarters. Fiscal 2026 distributions under 3.0% of market cap. Goodwill above $2.3B. Critical: a rule that cuts premium rates or bypasses title insurance, to Avoid. |
| B | Avoid 8 | Normalized earnings under $400M or tangible equity under $3.0B in the fiscal 2026 10-K. Critical: a recovery that lifts verified earnings, toward Watch. |
| C | Watch 6 | Two straight quarters of falling title revenue, to Avoid. Net margin under 7% in fiscal 2026. Critical: mortgage rates, a sustained fall toward Buy, a print above 7.3% toward Avoid. |
| D | Watch 6 | Title revenue down over 10% in fiscal 2026. Net margin under 5.0% in the March 2027 quarter. Critical: mortgage rates under 6.0% with the 10-year under 4.0%, to Buy. |
Valuation
What the price requires. These are our own numbers, and no seat saw them. Discounting at 9.40%, our rate of 4.5 points over the 10-year, a $6.96B market cap implies trailing free cash flow falling 5.4% a year for ten years, then growing 3%. Year three lands at $681.6M. At 8.40% the path is minus 7.3% and $641.3M; at 10.40%, minus 3.7% and $719.8M.
Net of stock pay, the base is $737.4M and the required decline is 2.4% to 6.1% a year, with year three at $609.6M to $684.9M. The committee worked from reported free cash flow, and this section follows it. Enterprise value is not available because the investment portfolio is untagged.
Hatched bars: the cash flow today's valuation implies at three discount rates. Other bars: each seat's own probability-weighted figure.
| Investor | Bear | Base | Bull | Weighted, year 3 | Against the price |
|---|---|---|---|---|---|
| A | 30%, $300M to $400M | 50%, $650M to $800M | 20%, $1.0B | $667.5M | inside the band |
| B | 30%, $277M | 50%, $707M | 20%, $991M | $634.8M | below the band |
| C | 30%, $500M | 50%, $800M | 20%, $1.1B | $770.0M | above the band |
| D | 30%, $450M | 50%, $750M | 20%, $1.05B | $720.0M | inside the band |
Ranges are weighted at their midpoints. Investor D sits on the band's top edge.
One seat is above the band, two inside and one below. Investor C, the seat above, explains its Watch as timing:
But the catalyst is in no observed operating print yet: mortgage rates were near a three-year high at the last read and all three order channels were negative in early October, so I wait for the inflection while the carry pays me to watch.
Investor C, Watch 6
| Investor | Entry discipline |
|---|---|
| A | Price to tangible book of 1.5x or less, or 10x five-year average earnings |
| B | 7x normalized earnings or less |
| C | A trailing free cash flow yield of 13% or more |
| D | A free cash flow yield above 14.0%, or 1.0x tangible book |
Comparables
No table: operating income is untagged for every title insurer we ran. First American's 9.5x earnings compares with 12.4x at Stewart, 12.2x at Investors Title and 14.9x at Fidelity National, with Old Republic at 8.8x. Its 11.6% free cash flow yield compares with 6.8% at Stewart and 5.3% at Investors Title. Fidelity National and Old Republic also carry annuity and specialty books. The market charges First American less than its pure title peers for the same cycle.
Company filings, SEC EDGAR, with Yahoo Finance prices, November 6, 2026.
Key risks
Ranked by the desk; Raised by names the source.
| Risk | Why it matters | Raised by | First signal |
|---|---|---|---|
| High. Transaction volumes fall further | Title is 95% of revenue and costs are largely fixed | Investors A, C, D; Analyst | Purchase orders in the fourth-quarter release |
| High. Title waivers or rate cuts | Shrinks the product, not the cycle | Investor A; Analyst (general knowledge, not in the filings we read) | Agency pilot or state rate action |
| Medium. Claims behind the shared squeeze | Reserves are set years before payment | Investor C; desk arithmetic | Net margin under 7% in the fiscal 2026 10-K |
| Medium. Investment income falls with short rates | Reported at $169M for the quarter | Investor D; Analyst; reported by Business Wire, not confirmed in a filing | Sequential fall in investment income |
| Medium. Cyber or data breach | Closing and wire data at scale | Analyst; forum (unverified) | An 8-K incident disclosure |
Refinancing is not on the list: almost all filed principal is due after year four.
What to watch
| Date | Event | What it decides |
|---|---|---|
| Not announced | Fourth-quarter results, 8-K Item 2.02 | Whether purchase and refinance orders turn up |
| By March 1, 2027 | Fiscal 2026 10-K, SEC deadline | Normalized earnings, net margin, distributions, tangible equity |
| By May 10, 2027 | March-quarter 10-Q, SEC 40-day deadline | Net margin against Investor D's 5.0% line |
| Ongoing | Mortgage rates and the 10-year yield, FRED | The critical environment for C and D |
Owning it onchain
xStocks issues FAFx, a token tracking First American Financial. We have not judged whether it is investable: our only quote came before the US market opened on November 6, 2026, when market makers quote it thinly, so it says nothing about what owning it costs.
Data
| Item | Figure | Source |
|---|---|---|
| Price | $68.20 | Yahoo Finance, close of November 5, 2026 |
| Shares outstanding | 102,100,000 | SEC EDGAR cover data, as of October 19, 2026 |
| Market cap | $6.96B | Price times shares, computed |
| Five-year mean net income | $486.5M | 10-K rows 2021 to 2025, computed |
Method. Four investors with different philosophies, each on a different AI model, read one identical fact sheet and voted independently. A name needs three Buys to enter a basket. How the committee works.
Correction. This article first said FAFx cost 26.60% to buy and sell back. That figure came from a single quote taken before the US market opened, when market makers quote thinly. We now measure that cost only during regular US market hours, and we have removed the figure.
As of November 6, 2026, BagsCapital manages no outside capital and holds no position in First American Financial. Nothing here is investment advice.