Comparing First American Financial (NYSE:FAF) and Sompo (OTCMKTS:SMPNY)

First American Financial (NYSE:FAF) and Sompo (OTCMKTS:SMPNY) are both finance companies, but which is the superior investment? We will compare the two companies based on the strength of their valuation, risk, dividends, analyst recommendations, institutional ownership, profitability and earnings.

Institutional & Insider Ownership

89.1% of First American Financial shares are held by institutional investors. 3.5% of First American Financial shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
First American Financial	9.33%	13.31%	4.14%
Sompo	12.35%	13.62%	3.96%

Volatility and Risk

First American Financial has a beta of 1.24, suggesting that its stock price is 24% more volatile than the S&P 500. Comparatively, Sompo has a beta of 0.29, suggesting that its stock price is 71% less volatile than the S&P 500.

Dividends

First American Financial pays an annual dividend of $2.44 per share and has a dividend yield of 4.0%. Sompo pays an annual dividend of $0.27 per share and has a dividend yield of 1.3%. First American Financial pays out 33.8% of its earnings in the form of a dividend. Sompo pays out 10.6% 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. First American Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation and Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First American Financial	$7.98 billion	0.78	$621.80 million	$7.22	8.43
Sompo	$35.69 billion	1.08	$4.22 billion	$2.54	8.13

Sompo has higher revenue and earnings than First American Financial. Sompo 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.

Analyst Recommendations

This is a summary of recent recommendations and price targets for First American Financial and Sompo, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First American Financial	0	1	7	0	2.88
Sompo	0	1	0	0	2.00

First American Financial presently has a consensus price target of $83.80, indicating a potential upside of 37.71%. Given First American Financial’s stronger consensus rating and higher possible upside, equities research analysts plainly believe First American Financial is more favorable than Sompo.

Summary

First American Financial beats Sompo on 11 of the 17 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 Sompo

Sompo Holdings, Inc. provides property and casualty (P&C) insurance services in Japan and internationally. The company operates through Domestic P&C Insurance Business, Overseas Insurance Business, Domestic Life Insurance Business, and Nursing Care & Seniors Business segments. It offers various P&C insurance products, including automobile, fire, personal accident, and marine, as well as security, risk management, assistance, and warranty services; and life insurance products. The company also provides nursing care and seniors services; and customer security, health, and wellbeing support services. In addition, it offers asset management services; home remodeling services; and health support services comprising health guidance and employee assistance programs. The company was formerly known as Sompo Japan Nipponkoa Holdings, Inc. and changed its name to Sompo Holdings, Inc. in October 2016. The company was incorporated in 2010 and is headquartered in Tokyo, Japan.