First American Financial (NYSE:FAF) & Willis Towers Watson Public (NASDAQ:WTW) Critical Analysis

First American Financial (NYSE:FAF) and Willis Towers Watson Public (NASDAQ:WTW) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their risk, dividends, profitability, earnings, analyst recommendations, institutional ownership and valuation.

Analyst Recommendations

This is a summary of recent ratings and price targets for First American Financial and Willis Towers Watson Public, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First American Financial	0	1	7	0	2.88
Willis Towers Watson Public	0	5	11	0	2.69

First American Financial presently has a consensus target price of $84.60, suggesting a potential upside of 37.49%. Willis Towers Watson Public has a consensus target price of $368.60, suggesting a potential upside of 26.41%. Given First American Financial’s stronger consensus rating and higher probable upside, research analysts plainly believe First American Financial is more favorable than Willis Towers Watson Public.

Profitability

This table compares First American Financial and Willis Towers Watson Public’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
First American Financial	9.33%	13.31%	4.14%
Willis Towers Watson Public	15.49%	22.19%	6.00%

Earnings and Valuation

This table compares First American Financial and Willis Towers Watson Public”s top-line 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	0.84	$621.80 million	$7.22	8.52
Willis Towers Watson Public	$9.71 billion	2.79	$1.60 billion	$16.26	17.93

Willis Towers Watson Public has higher revenue and earnings than First American Financial. First American Financial is trading at a lower price-to-earnings ratio than Willis Towers Watson Public, indicating that it is currently the more affordable of the two stocks.

Dividends

First American Financial pays an annual dividend of $2.44 per share and has a dividend yield of 4.0%. Willis Towers Watson Public pays an annual dividend of $3.84 per share and has a dividend yield of 1.3%. First American Financial pays out 33.8% of its earnings in the form of a dividend. Willis Towers Watson Public pays out 23.6% 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 and Willis Towers Watson Public has raised its dividend for 8 consecutive years. First American Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Institutional and Insider Ownership

89.0% of First American Financial shares are held by institutional investors. Comparatively, 93.1% of Willis Towers Watson Public shares are held by institutional investors. 3.5% of First American Financial shares are held by company insiders. Comparatively, 0.4% of Willis Towers Watson Public shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Volatility and Risk

First American Financial has a beta of 1.24, indicating that its stock price is 24% more volatile than the S&P 500. Comparatively, Willis Towers Watson Public has a beta of 0.46, indicating that its stock price is 54% less volatile than the S&P 500.

Summary

Willis Towers Watson Public beats First American Financial on 11 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 Willis Towers Watson Public

Willis Towers Watson Public Limited Company operates as an advisory, broking, and solutions company worldwide. It operates through two segments: Health, Wealth & Career and Risk & Broking. The company offers strategy and design consulting, plan management service and support, broking and administration services for health, wellbeing, and other group benefit program, including medical, dental, disability, life, voluntary benefits and other coverages; actuarial support, plan design, and administrative services for pension and retirement savings plans; retirement consulting services and solutions; and integrated solutions that consists of investment discretionary management, pension administration, core actuarial, and communication and change management assistance services. It also provides advice, data, software, and products to address clients' total rewards and talent issues; and risk advice, insurance brokerage, and consulting services in the areas of property and casualty, affinity, risk and analytics, aerospace, construction, global markets direct & facultative, financial, executive and professional risks, financial solutions, crisis management, surety, marine, and natural resources. In addition, the company offers integrated solutions that consists of investment discretionary management, pension administration, core actuarial, and communication and change management assistance services; and software and technology, risk and capital management, products and product pricing, financial and regulatory reporting, financial and capital modeling, M&A, outsourcing, and business management services. The company was formerly known as Willis Group Holdings Public Limited Company and changed its name to Willis Towers Watson Public Limited Company in January 2016. Willis Towers Watson Public Limited Company was founded in 1828 and is based in London, the United Kingdom.