Thursday, July 30, 2009

First American (FAF) Profit Triples

I obviously did an incredibly poor job of checking to see who was reporting today, First American (FAF) (title insurance) another decent sized holding reported this morning and put in a great number. Unfortunately this name has been so tied into mortgage rates (I think incorrectly) but you can't argue with the market. It's such a quiet stock I missed the breakout the past few days as well... hmm. Need to clone myself, right quick - not enough hours in the day.

Looks like they beat estimates by 16 cents, which makes the weakness of the stock everytime it was hammered when mortgage rates jumped all the more silly. Remember the thesis behind the title insurers is homes exchange hands - 30 year rates dont need to be at 5.2% for that to happen. Each foreclosure handed off to a vulture is a new title exchange... but again, see paragraph one: the market can't be argued with.

In full disclosure while stock after stock we own has been dancing to the heavens - at this point with almost every stock in the universe going up as HAL9000 does his thing, I cannot tell anymore which stocks are going up on merit and which are going up on actual solid business metrics. Our companies seem to be doing well on the business side, but countless companies who are not doing well but "beating expectations" are also surging. Therefore, there appears little value to these things we call fundamentals but I'll still type about them for entertainment purposes.

Via Reuters
  • Net income attributable to shareholders of the Santa Ana, California-based company rose to $70.3 million, or 75 cents per share, from $19.6 million, or 21 cents, a year earlier. Excluding investment losses, profit was 89 cents per share, the company said. Revenue fell 9 percent to $1.54 billion, while expenses fell 15 percent.
  • Analysts on average had expected a profit of 73 cents per share on revenue of $1.57 billion, according to Reuters Estimates.
Again I just continue to shake my head that companies can "exclude" things like investment loss and analysts say it doesn't count. Management option shares grants don't count, investment losses don't count, headcount reductions don't count. It's a pet peeve of mine but seriously US companies are far more expensive when you look at what the cost of business truly is. This is why when I hear the market is valued at XX Price to Earnings I just roll my eyes. Thankfully we all live in a parallel universe where "1x costs" (many of which happen quarter after quarter - i.e. management bonuses) are not a true cost. Don't we all wish we could exclude our investment losses from reality? Well if you do, go run a public firm.

  • Revenue from title insurance and related services dropped 16 percent to $935.3 million as the average fee per order fell, though the number of title orders closed grew by 9 percent.
  • Title insurance guarantees that property owners have title to property and can legally transfer that title. Many lenders require that buyers have the insurance before extending loans.
The company has a few divisions other than title insurance - they seem do be doing ok as well, but not the focus of the investment here. Full report here
  • The company's direct operations closed 438,100 title orders for the second quarter of 2009, an increase of 9 percent, when compared with 401,200 title orders closed in the second quarter of 2008. Average revenue per direct title order was $1,302, an 18 percent decline relative to the second quarter of 2008.
Long First American in fund; no personal position

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