Can First American's Home Warranty Maintain Its Profitability?

First American Financial Corporation’s FAF Home Warranty business can support long-term growth by providing recurring revenues, strong profitability and greater earnings diversification beyond its cyclical title-insurance operations.

Home Warranty generates relatively recurring revenues from customers seeking protection against unexpected home-system and appliance repair costs. This provides FAF with a more stable earnings stream than its transaction-sensitive title business. In the second quarter of 2026, Home Warranty generated $113.8 million of revenues, up 3% year over year, while pretax income increased 9% to $24.2 million. The pretax margin improved to 21.3% from 20.2%, reflecting solid profitability.

The segment’s claims experience also remains favorable. Its claim loss rate declined to 40% from 41% in the second quarter of 2026, primarily due to lower claim frequency, although higher claim severity partly offset the improvement. Continued control over claim frequency and severity should be important for maintaining margins.

Home Warranty also strengthens FAF’s business diversification by expanding its exposure to the broader homeownership and home-maintenance ecosystem, rather than relying primarily on real-estate transactions. When housing activity or mortgage originations weaken, the segment can help cushion FAF’s earnings because its revenues are not directly dependent on title order volumes.

Furthermore, renewal-based warranty policies can provide a more predictable source of revenue between real-estate transaction cycles. This recurring earnings stream can complement FAF’s title-insurance operations and improve the overall resilience of its business model.
Overall, Home Warranty could become an increasingly important stabilizing earnings engine for FAF. Its recurring revenues, strong margins and favorable claims trends can help offset volatility in the title business and support sustainable long-term profitability, provided FAF continues to manage claim costs effectively.

What About Other Players?    

Fidelity National Financial, Inc. FNF operates its Home Warranty business through Fidelity National Home Warranty, which protects against unexpected repair or replacement costs for major home appliances and systems. Home Warranty is included within FNF’s Title segment, alongside title insurance, escrow and other title-related services. The business also complements FNF’s core real-estate operations by providing an additional service to homeowners and real-estate customers.

Old Republic International Corporation ORI operates its Home Warranty business through Old Republic Home Warranty, a subsidiary that has been part of ORI since 1982. The business provides home warranty plans that cover the repair or replacement of major home systems and appliances when they fail because of normal wear and use, including heating, air conditioning, plumbing, electrical systems and kitchen appliances. The business serves both homeowners and real-estate professionals, making its warranties particularly relevant during home-buying and selling transactions. It also offers optional coverage that allows customers to tailor plans to their specific needs.

FAF’s Price Performance

Shares of FAF have gained 8.3% in the past year, outperforming the industry.

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FAF’s Undervaluation

The stock is undervalued compared with its industry. It is currently trading at a price-to-book value multiple of 1.3, lower than the industry average of 1.41. It carries a Value Score of A.

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Estimate Movement for FAF

The Zacks Consensus Estimate for FAF’s third-quarter and fourth-quarter 2026 EPS has moved up 6.8% and 2.8%, respectively, in the past 30 days. The same for the full-year 2026 and 2027 EPS has moved up 5.5% and 3.6%, respectively, in the past 30 days.

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The consensus estimates for FAF’s 2026 EPS and 2027 revenues indicate a year-over-year increase. 

FAF stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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