Arthur J. Gallagher & Co. (NYSE:AJG – Get Free Report) and First American Financial (NYSE:FAF – Get Free Report) are both finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their profitability, valuation, risk, dividends, institutional ownership, analyst recommendations and earnings.
Profitability
This table compares Arthur J. Gallagher & Co. and First American Financial’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Arthur J. Gallagher & Co. | 9.96% | 13.28% | 4.03% |
| First American Financial | 9.05% | 13.43% | 4.17% |
Dividends
Arthur J. Gallagher & Co. pays an annual dividend of $2.80 per share and has a dividend yield of 1.0%. First American Financial pays an annual dividend of $2.44 per share and has a dividend yield of 3.8%. Arthur J. Gallagher & Co. pays out 46.4% of its earnings in the form of a dividend. First American Financial pays out 34.4% 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. Arthur J. Gallagher & Co. has raised its dividend for 15 consecutive years and 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 lower payout ratio.
Analyst Ratings
This is a summary of recent ratings and price targets for Arthur J. Gallagher & Co. and First American Financial, as provided by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Arthur J. Gallagher & Co. | 0 | 5 | 16 | 0 | 2.76 |
| First American Financial | 0 | 1 | 7 | 0 | 2.88 |
Arthur J. Gallagher & Co. presently has a consensus target price of $280.74, suggesting a potential upside of 4.64%. First American Financial has a consensus target price of $81.60, suggesting a potential upside of 26.31%. Given First American Financial’s stronger consensus rating and higher possible upside, analysts clearly believe First American Financial is more favorable than Arthur J. Gallagher & Co..
Institutional and Insider Ownership
85.5% of Arthur J. Gallagher & Co. shares are owned by institutional investors. Comparatively, 89.0% of First American Financial shares are owned by institutional investors. 1.4% of Arthur J. Gallagher & Co. shares are owned by insiders. Comparatively, 3.5% of First American Financial shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.
Risk & Volatility
Arthur J. Gallagher & Co. has a beta of 0.55, suggesting that its share price is 45% less volatile than the S&P 500. Comparatively, First American Financial has a beta of 1.24, suggesting that its share price is 24% more volatile than the S&P 500.
Earnings & Valuation
This table compares Arthur J. Gallagher & Co. and First American Financial”s revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Arthur J. Gallagher & Co. | $15.75 billion | 4.36 | $1.49 billion | $6.03 | 44.49 |
| First American Financial | $7.45 billion | 0.89 | $621.80 million | $7.10 | 9.10 |
Arthur J. Gallagher & Co. has higher revenue and earnings than First American Financial. First American Financial is trading at a lower price-to-earnings ratio than Arthur J. Gallagher & Co., indicating that it is currently the more affordable of the two stocks.
Summary
First American Financial beats Arthur J. Gallagher & Co. on 10 of the 16 factors compared between the two stocks.
About Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co. engages in the provision of insurance brokerage, reinsurance brokerage, consulting, and third-party claims settlement and administration services. It operates through the following segments: Brokerage, Risk Management, and Corporate. The Brokerage segment consists of retail and wholesale insurance brokerage operations. The Risk Management segment provides contract claim settlement and administration services. The Corporate segment manages clean energy and other investments. The company was founded by Arthur J. Gallagher in 1927 and is headquartered in Rolling Meadows, IL.
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.
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