Financial Analysis: First American Financial (NYSE:FAF) vs. W.R. Berkley (NYSE:WRB)

W.R. Berkley (NYSE:WRB) and First American Financial (NYSE:FAF) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their valuation, risk, analyst recommendations, profitability, institutional ownership, dividends and earnings.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
W.R. Berkley	13.01%	18.86%	4.08%
First American Financial	6.80%	11.01%	3.50%

Analyst Recommendations

This is a summary of current ratings for W.R. Berkley and First American Financial, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
W.R. Berkley	3	11	3	0	2.00
First American Financial	0	2	3	0	2.60

W.R. Berkley presently has a consensus target price of $73.47, suggesting a potential upside of 7.24%. First American Financial has a consensus target price of $75.75, suggesting a potential upside of 23.63%. Given First American Financial’s stronger consensus rating and higher possible upside, analysts clearly believe First American Financial is more favorable than W.R. Berkley.

Institutional & Insider Ownership

68.8% of W.R. Berkley shares are held by institutional investors. Comparatively, 89.1% of First American Financial shares are held by institutional investors. 23.3% of W.R. Berkley shares are held by company insiders. Comparatively, 3.7% of First American Financial 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.

Volatility & Risk

W.R. Berkley has a beta of 0.39, meaning that its share price is 61% less volatile than the S&P 500. Comparatively, First American Financial has a beta of 1.27, meaning that its share price is 27% more volatile than the S&P 500.

Dividends

W.R. Berkley pays an annual dividend of $0.36 per share and has a dividend yield of 0.5%. First American Financial pays an annual dividend of $2.20 per share and has a dividend yield of 3.6%. W.R. Berkley pays out 7.6% of its earnings in the form of a dividend. First American Financial pays out 47.3% 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. W.R. Berkley has increased its dividend for 23 consecutive years and First American Financial has increased its dividend for 15 consecutive years.

Valuation and Earnings

This table compares W.R. Berkley and First American Financial”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
W.R. Berkley	$13.64 billion	1.91	$1.76 billion	$4.76	14.39
First American Financial	$6.13 billion	1.02	$131.10 million	$4.65	13.18

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

Summary

W.R. Berkley beats First American Financial on 11 of the 16 factors compared between the two stocks.

About W.R. Berkley

W. R. Berkley Corporation, an insurance holding company, operates as a commercial lines writers worldwide. It operates in two segments, Insurance and Reinsurance & Monoline Excess. The Insurance segment underwrites commercial insurance business, including excess and surplus lines, admitted lines, and specialty personal lines. This segment also provides accident and health insurance and reinsurance products; insurance for commercial risks; casualty and specialty environmental products; specialized insurance coverages for fine arts and jewelry exposures; excess liability and inland marine coverage for small to medium-sized insureds; and commercial general liability, umbrella, professional liability, directors and officers, commercial property, and surety products, as well as products for technology, and life sciences and travel industries. In addition, this segment offers cyber risk solutions; crime and fidelity insurance products; medical professional coverages; workers' compensation insurance products; general insurance; personal lines insurance solutions, including home, condo/co-op, auto, and collectibles; automobile, law enforcement, public officials and educator's legal, and employment practices liability, as well as incidental medical and property and crime insurance products; at-risk and alternative risk insurance program management services; professional liability; energy and marine risks; and provides insurance products to the Lloyd's marketplace. The Reinsurance & Monoline Excess segment provides treaty and facultative reinsurance solutions; property and casualty reinsurance; facultative reinsurance products include automatic, semi-automatic and individual risk assumed reinsurance; and turnkey products such as cyber, employment practices liability insurance, liquor liability insurance and violent events. The company was founded in 1967 and is headquartered in Greenwich, Connecticut.

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.