Contrasting First American Financial (NYSE:FAF) and Progressive (NYSE:PGR)

First American Financial (NYSE:FAF) and Progressive (NYSE:PGR) are both finance companies, but which is the superior business? We will compare the two companies based on the strength of their profitability, valuation, earnings, institutional ownership, analyst recommendations, risk and dividends.

Insider & Institutional Ownership

89.1% of First American Financial shares are owned by institutional investors. Comparatively, 85.3% of Progressive shares are owned by institutional investors. 3.7% of First American Financial shares are owned by company insiders. Comparatively, 0.3% of Progressive shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Earnings and Valuation

This table compares First American Financial and Progressive”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First American Financial	$7.45 billion	0.90	$621.80 million	$6.01	10.90
Progressive	$87.67 billion	1.38	$11.31 billion	$19.24	10.75

Progressive has higher revenue and earnings than First American Financial. Progressive 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.

Risk & Volatility

First American Financial has a beta of 1.25, meaning that its stock price is 25% more volatile than the S&P 500. Comparatively, Progressive has a beta of 0.33, meaning that its stock price is 67% less volatile than the S&P 500.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
First American Financial	8.34%	11.92%	3.82%
Progressive	12.90%	33.72%	9.11%

Analyst Recommendations

This is a breakdown of current ratings and target prices for First American Financial and Progressive, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First American Financial	0	1	5	0	2.83
Progressive	1	14	7	0	2.27

First American Financial currently has a consensus target price of $78.50, indicating a potential upside of 19.84%. Progressive has a consensus target price of $243.28, indicating a potential upside of 17.58%. Given First American Financial’s stronger consensus rating and higher probable upside, equities research analysts plainly believe First American Financial is more favorable than Progressive.

Dividends

First American Financial pays an annual dividend of $2.20 per share and has a dividend yield of 3.4%. Progressive pays an annual dividend of $0.40 per share and has a dividend yield of 0.2%. First American Financial pays out 36.6% of its earnings in the form of a dividend. Progressive pays out 2.1% 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. First American Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Progressive beats First American Financial on 9 of the 17 factors compared between 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 Progressive

The Progressive Corporation, an insurance holding company, provides personal and commercial auto, personal residential and commercial property, business related general liability, and other specialty property-casualty insurance products and related services in the United States. It operates in three segments: Personal Lines, Commercial Lines, and Property. The Personal Lines segment writes insurance for personal autos and recreational vehicles (RV). This segment's products include personal auto insurance; and special lines products, including insurance for motorcycles, ATVs, RVs, watercrafts, snowmobiles, and related products. The Commercial Lines segment provides auto-related liability and physical damage insurance, and business-related general liability and property insurance for autos, vans, and pick-up trucks used by small businesses, as well as non-fleet taxis, black-car services, and airport taxis; tractors, trailers, and straight trucks primarily used by regional general freight and expeditor-type businesses, and long-haul operators; dump trucks used by light contractors and heavy constructions; log trucks and garbage trucks used by dirt, sand and gravel, logging, garbage/debris removal, and coal-type businesses; and tow trucks and wreckers used in towing services and gas/service station businesses. The Property segment writes residential property insurance for homeowners, other property owners, and renters, as well as offers manufactured homes, personal umbrella insurance, and primary and excess flood insurance. The company offers policy issuance and claims adjusting services; acts as an agent to homeowners, general liability, workers' compensation insurance, and other products; and reinsurance services. It sells its products through independent insurance agencies, as well as through mobile applications and over the phone. The Progressive Corporation was founded in 1937 and is headquartered in Mayfield Village, Ohio.