First American Financial is the second-largest title insurer in the United States, a business that sits at the point where every home purchase and mortgage refinance must pass. It searches public records, underwrites the risk that a prior ownership claim or lien will surface, and closes the transaction. The stock trades near $73 with a market value of roughly $7.5 billion, a trailing price-to-earnings multiple near ten, and a dividend yield just above three percent. The market has priced the company as a cyclical asset, and the second quarter of 2026 shows why that framing is only half the story.
Revenue grew fifteen percent year over year to $2.1 billion in the quarter, and diluted earnings per share rose from $1.41 to $2.12. The headline hides an important split. Residential purchase activity, the traditional core of the business, is still soft. Direct orders from home purchases fell about three percent, and refinance volume, while rebounding, is the cheaper end of the premium mix. What carried the quarter was commercial title work, where revenue climbed thirty-four percent and average revenue per order jumped to nearly $20,000 from just over $15,000 a year earlier. Management calls the commercial business a record in progress for 2026.
That shift matters because commercial title carries far higher margins than residential, and it is less sensitive to mortgage rates. The title segment's pretax margin widened to 15.7 percent from 12.6 percent, even as the company invested in artificial intelligence and digital closing tools that push personnel and software costs higher. Investment income kept growing, up eleven percent in the segment despite a falling federal funds rate, because the company's $10 billion portfolio is being reinvested in higher-yielding securities while deposit balances at its bank subsidiary climb.
The counterargument is straightforward. A business deriving the large majority of revenue from real estate transactions cannot escape a housing downturn, and the venture portfolio in the corporate segment wrote down a non-marketable equity investment by about $42 million in the quarter. The stock is also no longer cheap on an absolute basis after a strong run; the fifty-two week low near $56 is well behind it. The forward question is whether commercial momentum and the data and technology moat can keep earnings compounding while residential volume stays muted, and whether the market is prepared to pay more than ten times earnings if they do.