Is FNF Stock A Buy?

Fidelity National Financial Inc (NYSE:FNF) is a Fortune 500 company that offers title insurance and settlement services. The real estate and mortgage market boomed during the chaos of 2020. The push for virtual work and school led many families to relocate from major city centers to more suburban environments.

This pushed Fidelity National Financial to rebound from the initial stock crash, but it still failed to fully recover to pre-coronavirus levels. This has some investors wondering – is FNF stock a buy?

A lower price could signal a value Buy, but it’s not as simple as the above explanation. COVID-19 also sparked government moratoriums on foreclosures and evictions through the end of the calendar year. No additional economic stimulus was issued prior to the election, and it’s unclear how a new administration may handle it in January.

What’s clear is 2021 could signal a pile of foreclosure and eviction cases to flood civil courthouses around the country.

The Fed cutting interest rates caused a flood of refinances and houses are more expensive than ever. Can Fidelity National survive?

Fidelity National Financial Has 2X The Risk

While many companies focus on business-to-consumer (B2C) sales and marketing, Fidelity National Financial mostly services backend operations.

It works with lenders, builders, attorneys, and real estate agents to provide stable title insurance, closing and escrow services, and more.

It handles both residential and commercial properties, which gives it a double risk we’ll discuss more below.

On top of this, the company also offers life insurance products. This includes a variety of annuities (immediate, fixed-rate, fixed index, immediate, etc.) and indexed universal life insurance. This is something that became much more necessary in the wake of the coronavirus pandemic.

In fact, the entire real estate market started booming as people rushed to cheaper towns to prepare for virtual work. That caused bidding wars for houses and created a seller’s market. If you’re selling your home, now’s a good time to do it. But does that mean FNF stock is a Buy?

Is FNF Stock A Buy?

When the coronavirus pandemic hit, FNF was experiencing an all-time high market capitalization. Its stock price then dropped from a 52-week high of $49.28 per share to a low of $10.10 per share. It wasn’t devalued that much since 2015.

Even after the coronavirus recovery and election, the company’s market cap is still hovering around $10 billion at the end of 2020.

Its share price is around $35 per share, and this is a far cry from the nearly $50 per share it traded for prior to the pandemic. This gives the company a lot of room to grow, as it is now trading for 2017 prices. Bullish investors see this as a value buy for a stable stock that should easily recover it’s value in the next year.

Bearish investors are more worried about the risks of investing now and holding real estate during a potential housing market crash.

Nobody knows what will happen to the housing market over the next five years, and this creates a major risk for Fidelity National Financial.

FNF Share Price Faces Risks Galore

The biggest risk of investing in Fidelity National is a housing market crash. The company already experienced two real estate and mortgage industry crashes over the past 20 years, and there’s no guarantee that pattern won’t continue.

It’s an especially big risk considering the CARES Act foreclosure and eviction moratoriums are lifted January 1, 2021.

When that happens, there’s a certain percentage of renters (both residential and commercial) who won’t be able to pay their bills and will foreclose. This could cause a chain reaction throughout the first half of 2021 that drives stock prices down.

However, even in the event of a foreclosure, there could still be a buyer market for foreclosures. So long as sales volume doesn’t stagnant or drop, FNF may provide an excellent return on investment for anybody jumping in at its current value under $40.

Of course, Fidelity National Financial isn’t the only player in the market. It could lose market share to its competition.

Can Fidelity National Financial Competitors Win?

Although it’s an essential business in the real estate market, FNF has competitors. This includes Old Republic (ORI), First American, Stewart, and AmTrust Title Insurance Company.

By entering into life insurance, it doubles that competition. This means it needs a big war chest to hold its ground against rivals with deep pockets.

Loss ratios will be an important metric to watch. This is true for any insurance company, as the money it collects in insurance premiums counts as revenue, while paying out for losses is an operational expense.

At its core, the better it can keep loss ratios (within state laws everywhere in which it operates), the more money it makes.

The company’s business also hinges on the real estate market. If that market collapses, it’ll create a chain reaction that bottlenecks FNF’s growth opportunities. It’ll need to foster strong business connections to navigate through the tough economy.

Is FNF Stock A Buy? The Bottom Line

Fidelity National Financial is an established title insurance and closing company that works with the real estate and mortgage industries. It rebounded from the market nosedive with a great profit record because of the rush to Zoom Towns created by the shutdowns.

As the world moved to work-from-home and homeschool lifestyles, people moved from big cities to smaller towns.

This gave the company a boost in revenues, but it could be temporary. Next year will be a turbulent market as government housing protections run out. Both residential and commercial properties could be ground zero for a flood of defaults. If consumer demand drops, FNF stock is likely to fall too. Invest with caution.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.