First American Financial Corp (FAF) stock intrinsic value fair value estimate & owner earnings analysis

First American Financial is one of the two or three largest title insurers in the United States. It earns money when property changes hands or is refinanced: it sells title insurance policies, performs escrow and closing services, and earns interest on the cash and investments it holds. Volume of home sales and refinancings, not price growth in any single year, is what moves its earnings, so profits swing widely through the housing cycle. Per-share owner earnings (operating cash flow, less working-capital swings, less stock compensation, less the capital spending needed just to stand still) ran $3.05 in 2016, rose to $9.19 at the 2021 refinancing peak, fell to $2.98 in 2023 when mortgage activity collapsed, and recovered to $4.26 in 2024 and $5.71 in 2025. Our measure leaves in the cash paid out on title claims, since claims are a permanent cost of the business, and strips out the timing swings in taxes, receivables and payables. We value the business on the median of the last ten years, $5.4 per share, because that window contains a full cycle: a low (2016 to 2018, and 2023), a boom (2020 to 2021) and a recovery. We do not use the latest year, which was helped by 11% more domestic title orders per day than in 2024, nor the trough. Owner earnings grew about 34% in 2025; we do not extend that into the future, so the base case starts at the $5.4 normal level with no growth. We credit no growth from housing recovery, market share gains or new products, because none of these is locked in. The one demonstrated, self-funded tailwind is share buybacks: the diluted share count has fallen from about 111 million in 2016 to about 104 million, but we left this out of the base case as too modest and uneven to rely on. Base case: $5.4 a year per share, sustained indefinitely, discounted at 6%, about $90 a share. The durability comes from a structural feature: title insurance is required on nearly every US mortgaged purchase, the company owns extensive title plant records, and it held positive owner earnings in every year of the past decade including the 2023 downturn. Bear case: about $48. Transaction volumes stay at the 2023 level, where owner earnings were $2.98 (similar to 2016 at $3.05), and never move up; a real risk because the company still spends $150 to $260 million a year on capital projects and technology, and because it carries senior notes and a bank business whose investment losses ($401.6 million in 2024, $206.4 million in 2023) show balance-sheet sensitivity. Bull case: about $115. Volumes return to and hold the 2019 to 2022 range, where the company actually earned $6.49, $7.59, $9.19 and $7.05; we use a sustained $7.0, a level it has already reached repeatedly and not a new peak. What would make this wrong: a permanent shift in how title insurance is priced or required (a legal or regulatory change, or a large title-insurance-free transaction model), a run of large claim losses, or a period of much lower transaction counts than any in the last decade. Judgement note: net investment gains and losses are non-cash and were added back as reported; the company has recorded a few hundred million of investment losses in 2023 and 2024, which we treat as timing but readers should be aware of. Purchase accounting amortisation is modest relative to earnings, so no separate decay adjustment was made.