Head-To-Head Analysis: Essent Group (NYSE:ESNT) vs. First American Financial (NYSE:FAF)

First American Financial (NYSE:FAF) and Essent Group (NYSE:ESNT) are both mid-cap finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their profitability, dividends, valuation, analyst recommendations, earnings, risk and institutional ownership.

Volatility and Risk

First American Financial has a beta of 1.27, meaning that its share price is 27% more volatile than the S&P 500. Comparatively, Essent Group has a beta of 0.88, meaning that its share price is 12% less volatile than the S&P 500.

Insider and Institutional Ownership

89.1% of First American Financial shares are owned by institutional investors. Comparatively, 93.0% of Essent Group shares are owned by institutional investors. 3.7% of First American Financial shares are owned by company insiders. Comparatively, 2.9% of Essent Group shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Dividends

First American Financial pays an annual dividend of $2.20 per share and has a dividend yield of 3.4%. Essent Group pays an annual dividend of $1.24 per share and has a dividend yield of 2.0%. First American Financial pays out 47.3% of its earnings in the form of a dividend. Essent Group pays out 18.1% 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 Essent Group has raised its dividend for 6 consecutive years. First American Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
First American Financial	6.80%	11.02%	3.50%
Essent Group	56.36%	12.66%	9.98%

Analyst Recommendations

This is a breakdown of current ratings and target prices for First American Financial and Essent Group, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First American Financial	1	0	4	0	2.60
Essent Group	1	4	4	0	2.33

First American Financial presently has a consensus target price of $76.00, suggesting a potential upside of 19.01%. Essent Group has a consensus target price of $65.67, suggesting a potential upside of 7.00%. Given First American Financial’s stronger consensus rating and higher probable upside, equities analysts plainly believe First American Financial is more favorable than Essent Group.

Valuation & Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First American Financial	$6.13 billion	1.06	$131.10 million	$4.65	13.73
Essent Group	$1.24 billion	4.87	$729.40 million	$6.85	8.96

Essent Group has lower revenue, but higher earnings than First American Financial. Essent Group 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.

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 Essent Group

Essent Group Ltd., through its subsidiaries, provides private mortgage insurance and reinsurance for mortgages secured by residential properties located in the United States. Its mortgage insurance products include primary, pool, and master policy. The company also provides information technology maintenance and development services; customer support-related services; underwriting consulting; and contract underwriting services, as well as risk management products and title insurance and settlement services. It serves the originators of residential mortgage loans, such as regulated depository institutions, mortgage banks, credit unions, and other lenders. Essent Group Ltd. was incorporated in 2008 and is based in Hamilton, Bermuda.