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Bullish Or Bearish On First American (FAF)?

The past couple of months have been tough on businesses around the world. The economy has taken a massive hit from COVID-19 and the future has never been less certain. We don’t know how or when the economy will recover, as we have very little clear idea of when the country will go back to normal.

One of the industries that may have to bunker down in particular is the real estate industry. Not only do people not have the money to buy new homes, but with restricted movement, it is tough to even consider buying property. Furthermore, in a struggling economy, holding onto assets is generally prudent (or at least the likely course of action for most people).

Industries related to real estate are also struggling. Home warranty companies have a hard time finding new business when property is not changing hands. First American (FAF) is one of the big US-based players in the home warranty business. How is First American weathering the storm?

The year so far

First American has struggled in 2020, like just about every other corporation. Stock prices plummeted in March and have not yet recovered completely. However, they have somewhat stabilized, which is as much as investors can ask for right now. In spite of the strain on real estate related industries, First American is keeping its head above water.

The outlook

But what can we expect over the next few months? Nothing will be certain for the foreseeable future, but we can potentially get an idea from First American’s response to COVID-19.

Continuity

First American seems to have a clear continuity plan in place, as they have not stopped serving customers. This service includes both the sales of plans and processing of plans. Many home repair services are considered essential services, including plumbing, electricals, and HVAC repairs.

Contractors working with First American have continued providing these services, with appropriate protection and social distancing practices in place.

Customer care

First American has also continued to allow customers to close transactions with low-contact and no-contact options. Where possible, customers are not required to visit branches, and offices are operating at minimum capacity.

Contract adjustments

One major concern of customers in service industries is that the terms and conditions of contracts will be strictly adhered to. In terms of home warranties, this would imply that customers who have to let their contracts lapse due to unemployment before being able to get repairs done, would not be able to back claim.

If we go by what reviews of First American’s home warranty segment say, the company pays careful attention to customer needs. However, in these uncertain times, it is unclear what companies need to do in order to survive.

Failure to make allowances for customers in dire straits could be bad for the company’s reputation, especially considering this industry is heavily swayed by service capabilities.

Lapsed contracts

Furthermore, it is unclear just how many lapsed contracts First American is having to deal with. Services like those provided by First American are some of the first to fall away when customers are unable to make ends meet.

Conclusion

First American (FAF) seems to be promising strong continuity practices. However, it is difficult to say how lapsed contracts and difficulties meeting customer needs will affect the company. As with most companies in 2020, deciding on whether to be bullish or bearish on First American depends largely on your appetite for risk.

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