This title insurance company beat earnings estimates in its most recent quarter, posting EPS of $2.94, compared to the $2.01 estimate. The shares have a current dividend yield of 2.15%, paid quarterly.
Stewart Information Services Corporation (STC)
From Upside
Stewart Information Services provides title insurance, purchased by nearly everyone who buys a home to ensure clear ownership of their property. Leveraged to the housing market, Stewart’s operating momentum is expected to screech to a halt this year, with the two-analyst consensus calling for earnings per share to plunge 31% in 2022 on 7% lower revenue. We believe that outlook is too bearish.
U.S. pending home sales fell 7% in December and 3% in November. But other data reveals a more upbeat housing environment: Builder sentiment is bullish, while housing starts rose 3% and building permits 9% in December. Even with interest rates moving higher, the housing market appears set for a decent year. Higher interest rates do pose a significant headwind to home refinancing. But home purchases remain far more profitable for the company. Stewart says its charges for refinance transactions are just 60% of what it charges for similarly priced home purchases.
Stewart trades at seven times trailing earnings, below its five-year norm of 14. At 10 times estimated 2022 profits, the stock trades at a 29% discount to the property and casualty insurance group.
Stewart is a Buy.
Richard J. Moroney, CFA, Upside, upside stocks.com, 800-233-5922, February 7, 2022