Earnings

Comparing Fidelity National Financial, Inc. (FNF) and NMI Holdings, Inc. (NMIH)

Fidelity National Financial, Inc. (NYSE:FNF) shares are up more than 54.93% this year and recently increased 0.64% or $0.24 to settle at $37.98. NMI Holdings, Inc. (NASDAQ:NMIH), on the other hand, is up 49.30% year to date as of 11/03/2017. It currently trades at $15.90 and has returned 8.53% during the past week.

Fidelity National Financial, Inc. (NYSE:FNF) and NMI Holdings, Inc. (NASDAQ:NMIH) are the two most active stocks in the Surety & Title Insurance industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect FNF to grow earnings at a 1.30% annual rate over the next 5 years. Comparatively, NMIH is expected to grow at a 15.92% annual rate. All else equal, NMIH’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 22.37% for NMI Holdings, Inc. (NMIH). FNF’s ROI is 9.60% while NMIH has a ROI of 13.00%. The interpretation is that NMIH’s business generates a higher return on investment than FNF’s.

Cash Flow 




The amount of free cash flow available to investors is ultimately what determines the value of a stock. FNF’s free cash flow (“FCF”) per share for the trailing twelve months was +0.57. Comparatively, NMIH’s free cash flow per share was +0.40. On a percent-of-sales basis, FNF’s free cash flow was 1.63% while NMIH converted 0.02% of its revenues into cash flow. This means that, for a given level of sales, FNF is able to generate more free cash flow for investors.

Financial Risk

FNF’s debt-to-equity ratio is 0.17 versus a D/E of 0.28 for NMIH. NMIH is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FNF trades at a forward P/E of 15.50, a P/B of 1.96, and a P/S of 1.16, compared to a forward P/E of 14.76, a P/B of 1.86, and a P/S of 6.10 for NMIH. FNF is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. FNF is currently priced at a -3.11% to its one-year price target of 39.20. Comparatively, NMIH is 10.96% relative to its price target of 14.33. This suggests that FNF is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for FNF and 1.60 for NMIH, which implies that analysts are more bullish on the outlook for FNF.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. FNF has a beta of 0.87 and NMIH’s beta is 0.74. NMIH’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. FNF has a short ratio of 1.34 compared to a short interest of 0.87 for NMIH. This implies that the market is currently less bearish on the outlook for NMIH.

Summary

NMI Holdings, Inc. (NASDAQ:NMIH) beats Fidelity National Financial, Inc. (NYSE:FNF) on a total of 8 of the 14 factors compared between the two stocks. NMIH has higher cash flow per share, is more profitable and generates a higher return on investment. In terms of valuation, NMIH is the cheaper of the two stocks on an earnings and book value, Finally, NMIH has better sentiment signals based on short interest.

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